three keys to ccpr success...three keys to ccpr success learn, understand, believe the fact base...

THREE KEYS TO CCPR SUCCESS

Learn, understand, believe the fact base

Learn understand and apply the processes with integrity and vigor

Model/demonstrate the behavior with passion through relentless

measurement, work ethic and positive rewards and recognition

H000000520

I •Reviews • Reinspections • Focus groups •Customer

interviews +Employee

interviews

CCPR METHODOLOGY

Develop Hypothesis

Design Solutions

•Debriefs •Potential

solutions • Front line/

CCPR

Test Solutions

Refine or Change Solutions

•Front line based • Structured

analysis

Design and Test

•Highly structured + Consistent •Front line based

+Dedicated leadership

•Measurement •Compensation •Recognition

H000000521

P-C CLAIM SERVICE ORGANIZATION CLAIM CORE PROCESS U,M,, .·/ tN

AutoCCPR Team leader

Jerry Br<J\\der Toni Boyd Auto Process Design Coordinator

lrrplernentatioo Coordinatcr

AutoCCPR Team leader

Auto CCPR Hom3owner Loss Notification Team Leader T earn Leaders IVCO Restn.dure·

Team Leaders

H000000522

P-C CLAIM SERVICE ORGANIZATION CLAIM CORE PROCESS REDESIGN

AutoCCPR Team Leader

Deborah K Carrpbell Assistant Vice President

Scott Snith

' d

~~'

Jack Pepping I rrplementation/Design Director Technology · or

Jerry Brovvder Auto Process

lrrplemantation Coordinator



Horreowner Loss Notification Team Leaders l\/CO Restructure

Team Leaders

H000000523

ALLSTATE PERSONAL LINES- CCPR HN•W , •• •lfllNI $Millions

1995 1 ... 119 ... 1MEI. ---·----

Casualty 76 182 .. 31:1 '3'Vf5

Auto PD 76 11• - 4~5

Owners 37 • 1.Y 1'439 50% opport\lnlty

•• ~c.

GrOll-- ,. 295 ., 1'~ . •''"'9J ~ed -,··

e..,_ 15 59 ,,, ·~ 108

Net savings 61 236 4-10 - 801

1985 19" . !W 1111t . 1• Casualty 102 2<M - • 448 Auto PO 102 - 4'1'2 §'10

67% opportunity Owners 50 Ht 1f 1 1·ti captured Gross savings 102 396 1N 1,8'1 1,210

Expense 15 St t7 102 108

Net savings 87 337 M2 959 1, 111

Key assump•tons • Includes casualty (Bl/UM coverages), auto physlcal damage, homeowners • Auto PD and homeowners Implementation limeUnes tracks casualty experience

H000000524

ALLSTATE PERSONAL LINES - CCPR BENEFIT PROJ!CTIONS

$Millions 1995 1996 1117 1998 1999

Casualty 76 182 265 319 345

Auto PO 76 216 352 425

Owners 37 86 120 139 SO-k opportunity

G<ossHW1gs 76 295 567 791 909 captured

Expense 15 59 97 102 108

Net savings 61 236 470 689 801

1995 1996 1997 1998 1999

Casualty 102 244 355 428 M33

Auto PD 102 289 472 570

67% opportunity Owners 50 115 161 186 captured Gross savings 102 396 759 1,061 1,219

Expense 15 59 97 102 108

Net savings 87 337 662 959 1, 111

Key assumptions • Includes casualty (Bl/UM coverages), auto physical damage, homeowners • Auto PD and homeowners implementation timelines tracks casualty experience

H000000525

P-C CLAIM SERVICE ORGANIZATION CLAIM CORE PROCESS REDESIGN

Deborah K Carrpbell • .. -' -·~-- C'\ rr ig

Assistant Vice President K '~ • Ill ·~u

I I I

Soott Srrith Jack Pepping I ~ IP \!\,~ . • :.,....,:. I ~· I • • lrrplerrentation/Design Director Technology Director

I I

Jerry BroVllder Toni Boyd Auto Process Design Coordinator I Patti Gloo .

I lrrplementation Coordinator

I I I I

AutoCCPR AutoCCPR AutoCCPR Hon130wner Loss Notification Team leader Team Leader Team leader Team Leaders fv'CO Restructure

Team Leaders

H000000526

HO CCPR SEPTEMBER, 1996

__/

H000000527

CONFIDENTIAL

Putting Out the Fire (Process)

ALLSTATE INSURANCE COMP ANY

Team debrief

September 1996

Thls report Is solely for the use of client personnel. No parl of ii may oe circulated, quoted, or reproduced for distiibulion outside the .:Jient organization wJlhout prior written approval from McKiruief & Company.

003PE-081m•m/tpnCH

= = =

H000000528

FIRE PROCESS KEY FINDINGS

• The current Fire Gap process was Implemented In response to adverse severity trends in 7 CSAs. Preliminary results lniUally appear highly variable, but on balance positive

• However, the team believes

- The existing fact base is too llmited in terms of sample size to support a broad-based redesign effort and perhaps dated

- Uncertainty of loss type (e.g., extent of damages) distribution hampers our ability to address opportunity

- Insight into additional opportunities not surfaced in the initial file review is needed prior to redesign

- It is unc!ear if the new Fire Gap process addresses the appropriate areas of opportunity within fire

• Therefore, the team recommends an enhanced analytic phase consisting of 3 primary steps

- Verify the loss type distribution through a home-office-based analysis

- Conduct a scan of Fire Gap test sites

- Expand fact finding (e.g., file review, intervtews) to non-test sites

003PE-<18lmem/tpnCH

1

= = =

H000000529

The current Fire Gap process was implemented in seven CSAs in response to adverse severity trends.

FIRE GAP TEST

Background • 7 CSAs

experience +30.0% increases in fire severity over prior year

• Countrywide number= +6.8%

003PE--081mem/tpn0!

2

= = =

'=

-

H000000530

The results are highly variable, but on balance positive.

FIRE GAP PROCESS RESULTS

30.3 34.1

12.8 t t.3

-2.0 30.1

. !

New Jersey

Maryland Virginia

Source: PIC Fire Team

54.1

-9.4

Florida NY metro west

27.4

39.0

Florida east

003PE-OSlmem/tpnCH

CJ YTO variance prior to test

0July3MM

30.2 30.0

11.0

New England

-8.2 6.8 6.1

Total Total US gap test

3

= = =

H000000531

The high variability in results highlights several measurement-related issues.

ISSUES SURROUNDING THE EXISTING MEASUREMENT

• A limited time frame - 2-3 months of data

• The lack of ability to track Fire Gap process losses vs. total F/L losses (e.g., prior to process implementation)

• Lack of comparable baselines for operational measures

003PE-118lmem/ tpnCH

4

= = = i =

z <::::>

= = .,,_ LT>

H000000532

FIRE PROCESS KEY ANDINGS

• The current Fire Gap process was Implemented in response to adverse severity trends In 7 CSAs. Preliminary results initially appear highly variable, but on balance positive

• However, the team believes - The exlstlng fact base Is too llmited in terms of sample size to support

a broad-based redesign effort and perhaps dated - Uncertainty of loss type (e.g., extent of damages) distribution hampers

our ability to address opportunity - Insight Into additional opportunities not surfaced in the initial tile

review is needed prior to redesign - It Is unclear if the new Fire Gap process addresses the appropriate

areas of opportunity within fire


- Verify the loss type distribution 1hrough a home·office-based analysis


- Expand fact finding (e.g., file review, interviews) to non-test sites

003l'E-081mem/tpnCH

5

= = = I=

""' ""' 0 = = <""> ...... 0 z

z p

= = -en

H000000533

The existing fact base is too limited in terms of sample size to support a broad-based redesign.

HIT SURVEY SAMPLE

Percent; number of files reviewed

1 00% = 457 files

Fire

003PE-08lmem/tpnCH

Only79 fire files were reviewed

6

= = =

=

H000000534

It appears that the opportunity varies dramatically by loss type, suggesting the need for segmenting fire losses. However, the sample size within each segment is currently too small to draw dermitive conclusions.

•

OPPORTUNITY BY LOSS TYPE

Fire loss distribution Percent; {number)

Opportunity relativity Index= 1.00

Lightning loss

without fire Significant smoke damage

Other minor loss

Minor smoke damage

Partial loss of structure

Lightning loss without fire

Significant smoke damage

Total loss

Partial structure

Minor smoke damage

Other minor losses

t------, I q.s2

t-----' I I

0.{72 ._ _ _, I

I 0.170

I

003PB-08lmem/tpnCH

1.90

1.39

1.90

= = =

Index= 1.00 {17%)

Source: Homeowners clalms closed me review

7

H000000535

Furthermore, a number of initiatives have been launched that may make the initial findings a bit dated.

RECENT INITIATIVES

• Reduction of QVP usage as Indicated by the PIC and supported by field measurements

• Process change requiring ACV settlements (when applicable) vs. FRC settlements and supporting measures

• Mandatory use of ALE worksheet

• Mandatory use of subro filters and templates

003PE-C31mem/lpnCH

8

= = =

=

H000000536

Secondly, the team has questions regarding the segmentation approach and distribution.

SEGMENTATION ISSUES

• Do the existlng categories represent the best approach to segmentation?

• Does the sample distribution reflect the distribution in the population?

IJOlPF.-081mem/ tpnCH

9

= = en

""' .= = = .,,.. ,_,...

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H000000537

Insight into additional opportunities not surfaced in the initial file review is needed prior to redesign.

003Pll-0Blmem/tpnCH

OPEN ISSUES PR El/Ml WARY

• Does the opportunity for contents vs. structure differ dramatically for fire losses?

• How should ALE be handled?

• Does timely inspection drive loss cost?

• Should there be fast track settlements? If so, at what dollar level or nature at claim?

• Who determined the cause and origin? Was this the proper person? Was this done on a timely basis?

• What impact does FRC payments have on the overall evaluation?

• How proactively are we handling files and does it make a difference?

10

= = =

=

H000000538

003PE-081mem/lpnCH

More specifically, on the proactive vs. reactive issue, we hope to address several key points.

PROACTIVE VS. REACTIVE MANAGEMENT OF LOSSES

Issue

Scope

ALE

Contents

Causation

Management involvement

Proactive Reactive

We inspect and scope QVP/contractor scopes

Up-front discussions and agreement Down the road with customers

Up-front inventory with photos

On-sight with experts

Up-front coaching and direction

Insured submits inventory to us at a later date

Await expert report

30-day review

11

= = =

H000000539

Finally, at tltls time we are uncertain if the existing Fire Gap process addresses the appropriate areas of opportunity.

FIRE LOSS PROCESS

Notifi-cation

Key findings

Percent of 3 7 18 4 28 9 5 3 total fire opportunity

Percent of 0.51 1.19 3.06 0.68 4.76 1.53 0.85 0.51 total property opportunity

22

3.74

003PE.C8lmem/1pnCH

CAT

1 = 100

0.17 =17

12

= = en

.>-cl

H000000540

Additional hypothe.sis as it relates to the quantitative and qualitative measure.s of the Fire Gap process.

FIRE LOSS PROCESS (CONTINUED)

Qualilalive findings

Noliflcation

• Large losses - Quick

tlmetf responss

- Control of loss upfront

• Smaler losses - Delay in

l!ISllred contact

- LOD68

control upfront

None • PA's Involvement cause and origin suffered

• Accepting fire marshal report

•No separate C&O report done

• Loss of evidence

• Little documentat Ion on mid-size losses

•Who deteR111ned C&O?

None

Evaluellon

Dwe!Rng • QVp WJiling

losses I nslead of adjuster

• T akifl9 submitted estimates

• Limited Inspections

Contents • Taking inventory

listing from Insured

• Llmltecl verification of Inventory

• Replacement costs poorly researched it at aH

• Contents poorly conlrolled and evaluated

ALE • No control on

most claims • Small losses -

normal eiqienses not deduoied

• LeadtoAl.E worksheet

Negotiation

• Lacking vmen edjustor Inspects with QVP

• PA involve" ment

• Little use of national RS for contents evaluation

Liil gaiion management

• Dis· regarded defense counsel caling shots

003PE--0811I1ein/tpnCB.

• Direct result of lrwestigation

PRELIMINARY

CAT

None

13

en t=l :--0

~

= = =

= '-"'

~

H000000541

Additional hypothesis as it relates to the quantitative and qualitative measures of the Fire Gap process.


Notlfl- Replace· Litigation

cation ment manage-ment

Additional • Estabfish • TBD • Etiminate • TBD • Enhance • Eliminate • Utilize • Speciali-hypotlles[s screening last track ALE control joint national zation/ .

melhod handling • Enhance inspec- replace- segment • Contact • Qualified contents tionswith ment handling

require- C&Oreps control QVP/ source mentson should • Blminate other data au losses determine fast track contrac- where

•MOT cause of handling tors applicable loss when • Proactive • EHmlnate •Research cost loss costs fast track compe-effective manage- handling lilive

• Verlli- ment • Tralnlng pricing on cation of • Adjuster on PA contents cause of soope handling items loss by damages through claim rep and prepare other

• Secura estimate means evidence approp-riately

• Eliminate fast track handling

• Directly tied to lnvesti-gatton

• Transfer file to subro in timely manner

• 2nd look subro

003PE-081mem/tpnCH

PRELIMINARY

CAT

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H000000542


FIRE LOSS PROCESS {CONTINUED)

Notlfl- Replace-Evaluation cation ment

What fire •Timely • Verily • Subro • Initial • Evaluation • Not •Contents process contact coverage filter/ SIU worksheet addre- worksheet addresses wltl1 lsln templates filler -Carpet- ssed

insured effect • Fire process based on • Rule out process checklist extentol question- consul- non·ITEL damages able tation claims (per tier clrcum- worksheet -Contents-specifi· stances worksheets cations) • Address - Structure - TL

limits that evalualion apply • ALE worksheet and/or excluded property

Is this • Yes • Yes •Yes • No •Yes •No • No measured In fire process?

003PE--OS1rnetn/lpnCH U> t=J

'""' <J>

= = en

= <.....>

> s:: PRELIMINARY

" """ ""' t=J Litigation '"""' = manage- ""' ..... ment

'"""' "" = = = • Nol • Subro •Not " ..... add re- filler/ addre- = ssed templates ssed z

z •No •Yes •No p

= = .... <J>

:-0

""""""

15

H000000543


' FIRE LOSS PROCESS (CONTINUED)

Extent of remaining opportunity

Notlfl· cation

() () ? ()

Replace· ment

Litigation manage· ment

? ()

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PREUMINARY

0 ~w

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16

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H000000544


• The current Fire Gap process was implemented in response 1o adverse severity trends in 7 CSAs. Preliminary results initially appear highly variable, but on balance positive


- The existing fact base is too limited in terms of sample size to support a broad-based redesign effort and perhaps dated


- Insight into additional opportunities not surfaced Jn the initial file review is ni;ieded prior to redesign

- It is unclear if the new Fire Gap process addresses the appropriate areas of opportunity withln fire



- Conduct a scan Of Are Gap test sites

- Expand fact finding (e.g., file review, Interviews) to non-test sites

003PE--OSlrnem/tpnCH

17

= = =

=

= p

=

H000000545

003Pll--OS1mern/tpnCH

The team recommends an enhanced analytic phase consisting of three primary steps.

RECOMMENDED APPROACH

Verify loss type distribution

Description

• Using systems data, profae fire losses by taking a representative sample

• UtDize output to determine appropriate sampllng for additional analyses and provide foundation for staffing modal

Conduct scan of Fire Gap test sites

• Interview claim reps, managers, and process specialists - Understand the process - Surface further opportunity

areas - Verify methodology of

implementation and compliance with processes

• Review files In the process (both open and closed} - Understand process further -Gauge process effectiveness - Test modified review form(s) - Enhance sample size - Identify remaining opportunity

areas/issues

Expand fact finding to new test sites

• Increase sample sizes tn light of distribution and open issues by conducting open and closed file reviews at 3 to 6 additional sites

• Conduct interviews with claim reps, management, and CPS -surface areas of opportunity and process possibilities

18

= = en

=

>-rj

>= = = = " ....,, = =

H000000546

VERIFY LOSS TYPE DISTRIBUTION

Fire loss distribution survey (FLDS}

1. Claim number

2. Cause of loss

3. Amount paid {including deductible) -AA, BB, CC, DD, other

4. Lina code

5. Peril code

6. Extent of damage

Parameters

Total loss

Major tire

Moderate fire

Minor fire

Severe smoke damage

Minor smoke damage

Lightning without fire

Types

75% of AA coverage or higher

$15,000 to total loss

$2,501 to $15,000

$1 to$2,500

$2,500+

$1 to$2,500

003PE-O!lmemftpnCH

) ) )

Approach

• Pull all information off the claims systems

• Supplement with tile look-ups for cause of loss when necessary

• Profile by - Cause of loss

- Extent of damage

- Amount paid

• Look for variability by regions

• Draw conclusions/implications

19

= = = I lo

H000000547

003PE-OSlm•m/tpnCH

The team recommends a work plan for the analytical phase.


Activity

Identify and obtain additional data • Percent contents paid to total fire paid • Percent of PAC activity •Total pald/average paid fire gap process losses • List of 500 fire loss files

Design audit formJFLDS • Flre loss specific • Defined measure of fire loss distribution

Conduct review • Systems list (UCAP} • Home office review of unsegmented files

Compile data and analyze results •Loss segmentation • Paid by coverage

Develop further hypothesis as needed •Team calibration

'

Responsibility

Jeanice and Paul (economic team)

Jeanice

Fire team

Jeanice

Fire team

Sep Oct Nov

9 16 23 30 7 14 21 28 4 11 18 25

x

x

x

x

x

20

= = en

=

H000000548

The team recommends a preliminary plan for additional analysis of the fire gap process.

' CONDUCT SCAN OF ALE GAP PROCESS TEST SITES

Sep Oct Nov

003PE-081mem/tpnCH

' = = = I

Activity Responsibility 9 16 23 30 7 14 21 28 4 11 18 25

Design interview guides • Front line employees • MCO management • Claim process speciaUsts

Design file review form to address specific areas • Contents evaluation • ALE evaluation •Loss management (proactive vs. reactive) • Loss segmentation

Jeanice and Paul

Chrisse and Mike

Proof the review form and calibrate team members Fire team • Test local - lllinols CSA- 20 files • Revise form as needed

Arrange for fact finding Chrisse • File selection 20-25 per site • Select sites (4 - NY metro, New England, Florida

East, Florida West} • Schedule fact finding

Train review teams (as necessary) Fire team

Visit sites 2·2 1/2 days per site Fire team • File review •Interview

Debrief nightly Fire team

x

x

x

x

x

x

x 21

H000000549

Additional analysis of fire loss handling in non-test sites is recommended to gain further understanding and to surface additional hypothesis.

EXPAND FACT FINDING TO NON-TEST SITES

Sep Oct

Activity Responsibility 9 16 23 30 7

Arrange for fact finding Chrisse x • Select sites (4- Denver, So. Cal., Texas,

Valley Forge) • File selection - 20-25 files per site • Schedule visits

Visit sites Fire team x • File review • Interviews

Team debrief- nightly Fire team x

Compile data Fire team • Analyze results • Develops further hypothesis

Develop plans for further analysis (if necessary) Fire team

Formal debrief Flre team

Nov

14 21 28 4 11

x

x

x

003PE--0Slmem/tpnCH

18 25

22

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H000000550

I VERIFY LOSS TYPE DISTRIBUTION

Fire loss distribution survey (FLDS)

1. Claim number

2. Cause of loss

3. Amount paid {including deductible) -AA, BB, CC, DD, other

4. Line code

5. Peril code

6. Extent of damage

Parameters Types

Total loss 75% of AA coverage or higher

Major tire $15,000 to total loss

Moderate fire $2,501 to $15,000

Minor fire $1 to $2,500

Severe smoke damage $2,500+

Minor smoke damage

Lightning without fire

$1 to$2,500

003PE.()8lmem{lpnCH

) ) )

Approach

• Pull all information off the claims systems

• Supplement with tile look-ups for cause of loss when necessary

• Profile by

- Cause of loss

- Extent of damage

- Amount paid

• Look for variability by regions

• Draw conclusions/implications

19

= = = I \=

= -= = = ,,,.. '-'"'

H000000551

003PE-a8lmem/tpnCH

The team recommends a work plan for the analytical phase.


Activity

Identify and obtain additional data • Percent contents paid to total fire paid • Percent of PAC activity • Total pald/average paid fire gap process losses • List of 500 fire loss files

Design auditformJFLDS • Fire loss specific • Defined measure of fire loss distribution

Conduct review • Systems list (UCAP) • Home office review of unsegmented files

Compile data and analyze results •Loss segmentation • Paid by coverage

Develop further hypothesis as needed • Team calibration

'

Responsibility

Jeanice and Paul (economic team)

Jeanice

Fire team

Jeanice

Fire team

Sep Oct Nov

9 16 23 30 7 14 21 28 4 11 18 25

x

x

x

x

20

= = en

H000000552

I

I

The team recommends a preliminary plan for additional analysis of the fire gap process.

CONDUCT SCAN OF ALE GAP PROCESS TEST SITES

Sep Oct Nov

003PE--081mem/tpnCH

= = = I

Activity Responsibility 9 16 23 30 7 14 21 28 4 11 18 25

Design interview guides Jeanice and Paul • Front line employees • MCO management • Claim process specialists

Design file review form to address specific areas Chrisse and Mike • Contents evaluation • ALE evaluation • Loss management (proactive vs. reactive) • Loss segmentation

Proof the review form and calibrate team members Fire team • Test local- lllinols CSA- 20 files • Revise form as needed

Arrange for fact finding Chrisse • File selection 20-25 per site • Select sites (4 - NY metro, New England, Florida

East, Florida West) • Schedule fact finding

Train review teams (as necessary)

Visit sites 2·2 1/2 days per site • File review •Interview

Debrief nightly

Fire team

Fire team

Fire team

x

x

x

x

x

x

x 21

H000000553

Additional analysis of fire loss handling in non-test sites is reconunended to gain further understanding and to surface additional hypothesis.

' ' EXPAND FACT FINDING TO NON-TEST SITES

Sep Oct Nov

003Pll--08lmem/ lpnCH

= = =

Activity Responsibility 9 16 23 30 7 14 21 28 4 11 18 25 Arrange for fact finding Chrisse x • Select sites (4 - Denver, So. Cal., Texas,

Valley Forge) • File selection - 20-25 fHes per site • Schedule visits

Visit sites Fire team x • File review • Interviews

Team debrief- nightly Fire team x

Compile data Fire team x • Analyze results • Develops further hypothesis z .=

= x = .-U1'

Develop plans for further analysis (H necessary} Fire team

Formal debrief Fire team x ·'"""' """ .-

22

H000000554

CONFIDENTIAL

Putting Out the Fire (Process)


Team debrief

September 1996

This report ls solely for the use of client peisonnel. No part of II may 6e circulated, quoted, or reproduced for cilsliibu!ion outside the client otganlzatlon without prior written approval from McKinseY & Company.

003PE-08lmemltpnCH

= = =

z .= = = .po. <..:n

H000000555


• The current Fire Gap process was lmplemented in response to adverse severity trends in 7 CSAs. Preliminary results lnlUally appear highly variable, but on balance positive


- The existing fact base is too Umited in terms of sample size to support a broad-based redesign effort and perhaps dated



- It is unclear if the new Fire Gap process addresses the appropriate areas of opportunity within fire





OOOPE-oslmem/ tpnOI

1

= = en

= = ..,.. <..n

H000000556

The current Fire Gap process was implemented in seven CSAs in response to adverse severity trends..

FIRE GAP TEST

Background • 7 CSAs

experience +30.0o/o increases in fire severity over prior year

• Countrywide number= +6.8%

D031'E-08lmem/tpnCH

2

= = =

0 =

= 9

= = ..... <..n

·'""'

H000000557



30.3 34.1

12.811.3

·2.0 30.1

New Jersey

Maryland Virginia


54.t

27.4

·9.4 39.0

Florida NY metro Florida west east

003PE-Olllmem/tpnCH

CJ YTD variance prior to test

E)JulySMM

30.2 30.0

11.0

New England

-8.2 6.8 6.1


3

= = =

H000000558

The high variability in results highlights several measurement-related issues.

ISSUES SURROUNDING THE EXISTING MEASUREMENT

• A limited time frame - 2-3 months of data

• The lack of ability to track Fire Gap process losses vs. total F/L losses (e.g., prior to process Implementation)

• Lack of comparable baselines for operational measures

003PE--081mem/ tpnCH

4

= = en

H000000559


• The current Fire Gap process was Implemented in response to adverse severity trends In 7 CSAs. Preliminary results initially appear highly variable, but on balance positive


- The existing fact base Is too limlted in terms of sample size to support a broad-based redesign effort and perhaps dated


- Insight Into additional opportunities not surfaced in the initial tile review Is needed prior to redesign

- It Is unclear if the new Fire Gap process addresses the appropriate areas of opportunity within fire


- Verify the loss type distribution 1hrough a home·office-based analysis



OO>!'E-OBlmem/tpnCH

5

= = =

= .= = = ,,,_ <J">

H000000560

The existing fact base is too limited in terms of sample size to support a broad-based redesign.

HIT SURVEY SAMPLE

Percent; number of files reviewed

100% = 457 files

Fire

003PB-081mem/tpnCH

Only79 fire files were reviewed

6

= = =

z p

=

H000000561

It appears that the opportnnity varies dramatically by loss type, suggesting the need for segmenting fire losses. However, the sample size within each segment is currently too small to draw defmitive conclusions.

' OPPORTUNITY BY LOSS TYPE

Fire loss distribution Percent; {numbe"


Lightning loss


Other minor loss

Minor smoke damage




Total loss

Partial structure

Minor smoke damage

Other minor losses

1-----. I q.s2

--~I

I 0.(72

1---~ I I

o.llo I

003l'J!.-081mem/tpnCH

1.90

1.39

1.90

= = =

Index= 1.00 {17%) =

Souroe: Homeowners claims closed file review

7

H000000562

Furthermore, a number of initiatives have been launched that may make the initial findings a bit dated.

RECENT INITIATIVES

• Reduction of QVP usage as indicated by the PIC and supported by field measurements

• Process change requiring ACV settlements (when applicable) vs. FRC settlements and supporting measures

• Mandatory use of ALE worksheet

• Mandatory use of subro filters and templates

003PE.(]81mem/tpnOI

8

= = en

= p

= = -en

=

H000000563

Secondly, the team has questions regarding the segmentation approach and distribution.

SEGMENTATION ISSUES

• Do the existing categories represent the best approach to segmentation?

• Does the sample dlstrlbutlon reflect the distribution in the population?

003ffi-08lmem/ tpnCH

9

= = =

=

z -= = = -<.n

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H000000564

Insight into additional opportunities not surfaced in the initial file review is needed prior to redesign.

003Pll-OBlmem/tpnCH

= = =

OPEN ISSUES PRELIMINARY




• Should there be fast track settlements? If so, at what dollar level or nature of claim?


• What impact does FRC payments have on the overall evaluation?


10

H000000565

001PE-08lmem/tpnCH

More specifically, on the proactive vs. reactive issue, we hope to address several key points.

•

PROACTIVE VS. REACTIVE MANAGEMENT OF LOSSES

Issue

Scope

ALE

Contents

Causation

Management involvement

Proactive Reactive

We inspect and scope QVP/contractor scopes

Up-front discussions and agreement Down the road with customers

Up-front inventory with photos

On-sight with experts

Up-front coaching and direction

Insured submits inventory to us at a later date

Await expert report

30-day review

11

= = = =

H000000566

Finally, at this time we are uncertain if the existing Fire Gap process addresses the appropriate areas of opportunity.

FIRE LOSS PROCESS

No ti fl· cation

Key findings

Percent of 3 7 18 4 28 9 5 3 total fire opportunity

Percent of 0.51 1.19 3.06 0.68 4.76 1.53 0.85 0.51 total property opportunity

22

3.74

003PE-()81mem/!pl1CH

CAT

1 =100

0.17 =17

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Additional hypothesis as it relates to the quantitative and qualitative measures of the Frre Gap process.

' FIRE LOSS PROCESS (CONTINUED)

Qualitatlve findings

Notlllcatlon

• Large losses None - Quick

timely feSponSEI

- Control of loss upfront

• Smaler losses - Delay in

insured contact

- Lo068 control upfront

• PA's involvement cause and origin sulfered

• Acceptfng fire marshal report

• No separale C&O report done

• Loss of evidence

• Little documenlat Ion on mid-size losses

• Who determined C&O?

None

Evaluallon

Dwe!Ung • QVP wriling

losses lnSlead of adjuster

• Taking submitted esUmates

• Limited Inspections

Contents • Taking inventory

!Isling from rnsured

• Limited verHication of invlllllory

• Replacement costs poorly reaearched ii al all

• Contents poorly conlrolled and evaluated

ALE • No conlrol on

most claims • Small losses -

normal expenses not deducted

• LeadtoALE worksheet

Negotiation

• Lacking when adjUSlor inspecls wilh QVP

• PA involvement

• Little use of national RS for corrlenlS evaluation

Lill gallon management

• Dis-regarded defense counsel ca ling shots

003PE--08lmem/lpnGl.

• Direct result of investi-gation

PRELIMINARY

CAT

None

13

= = =

=

H000000568



Notlfl- Replace· Litigation

cation ment manage-ment

Additional • Establish • TBD • Eliminata • TBD •Enhance • EUmlnale • Utilize • Speciali· hypothesis screening last track ALE control Joint national zation/

melhod handling • Enhance inspec- replace- segment • Contact • Qualified contents lions with ment handling

require- C&Oreps control QVP/ source mentson should • EUmlnate other data aUlosses determine fast track contrac- where

•MOT cause of handUng lors applicable loss when • Proactive • EHmlnate •Research cost loss costs fast track comps· effective manage- handling titive

• Verifl- ment • Training pricing on cation of • Adjustor on PA contents cause of scope handling Items loss by damages through claim rep and prepare other

• Secure estimate means evldence approp-riately

•Eliminate fast track handling

• Dlreclly tied to lnvesti-gation

• Transfer fila lo subro In timely manner

• 2nd look subro

003PE-081Inem/tpnCH

PRELIMINARY

14

= = =

H000000569

I 0 0 0 0 0 0 01 -...J 0


•


What fire process addresses

ls this measured in fire process?

Notification

•Timely contact wlth Insured based on extent of damages (per tier specUications}

•Yes

• Verily coverage Is In effect

• Rule out question· able circumstances

• Address limits that apply and/or excluded property

• Yes

• Subro fitter/ templates

• Fire process consultation worksheet

•Yes

• Initial SIU filler

• No

Evaluation

• Evaluation worksheet -carpet

process checklist non-IT EL claims

-Contentsworksheets

- structure - TL evaluation

• ALE worksheet

• Yes

• Not addressed

•No

Replacement

•Contents worksheet

•No

Litigation management

• Not addressed

•No

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PRELIMINARY

• SUbro filter/ templates

• Yes

CAT

•Not addressed

•No

'

15

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Additional hypothes.is as it relates to the quantitative and qualitative measures of the Fire Gap process.


Extent of· remaining opportunity

Notification

() () ? ()

Replacement

Litigation manage· ment

? ()

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H000000571

RRE PROCESS KEY FINDINGS

• The current Fire Gap process was implemented in response to adverse severity trends in 7 CSAs. Preliminary results initially appear highly variable, but on balance positive

• However, the team belfeves

- The existing fact base is too limited in terms of sample siz.e to support a broad-based redesign effort and perhaps dated





- Verify the loss type distribution through a home-office-based analysis - Conduct a scan of Fire Gap test sites

- Expand fact finding (e.g., file review, Interviews) to non-test sites

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Verify loss type distrlbution

Description

• Using systems data, profile fire losses by taking a representative sample

• Utilize output to detennine appropriate sampllng for additional analyses and provide foundation for staffing model


• Interview claim reps, managers, and process specialists - Understand the process -Surface further opportunity



• Review files In the process (both open and closed} - Understand process further -Gauge process effectiveness - Test modified review form(s) - Enhance sample size - Identify remaining opportunity

areas/issues


• Increase sample sizes in light of distribution and open issues by conducting open and closed file reviews at 3 to 6 additional sites

• Conduct interviews with claim reps, management, and CPS -surface areas of opportunity and process possibilities

18

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H000000573

CONFIDENTIAL

Understanding Customer Satisfaction in Homeowners


Homeowner team debrief

September 1996

This ll!port Is solely for the use oi client pasc>nnel. No part of it llla}' tie cireulated, quot..<!, or reproduced fur distn"bulion outside the client organization without prior written approval from Mcl<insey &: Company.

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H000000574

' INTRODUCTION

• The team's goal is to identify and understand the key drivers of satisfaction to be used during the design process t

• There are a number of Important analyses that the team still needs to complete

• Therefore, we are unable to share definitive recommendations at this time, but we will share our work In progress

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' KEY FINDINGS

c).

'

Overall claim satisfaction has deteriorated over time with significant variation across perils, between CATs and non-CATs and by method of settlement

• ICSS (Internal Claims Satisfaction Survey) initially suggests there are 4 key drivers of BIS satisfaction that are consistent across CSAs, the best and worst MCOs, Auto and property and satisfied and unsatisfied customers. The key drivers are

- Sales agent follow-up

- Adequately informed

- Claim hassle-free

- Timely claim handling

• For each driver, there are a number of issues that need to be addressed

2

H000000576

ABOUT THE ICSS SURVEY PROCESS

• Phone interviews

• Overall satisfaction question in the front of survey

• Diagnostic questions only asked if customer is less than "completely" or "very" satisfied

• Assumes 100".lo conformance to requirements for "completely" and "vary• respondents

• Periodic data check of "completely" and "very" satisfied (one week each quarter)

OCY31"E-ll83mem/lpnCH

3

= = =

H000000577

WHAT CLAIMS ARE INCLUDED JN THE SURVEY SAMPLE?

• The sample includes

- Claims opened in the past 6 months

- Claims closed jn the last 30-36 days

- A minimum paid loss of $100

- Auto line 10 and now also indemnity, coHision, and comprehensive - Property lines 70 and 71, first party losses only

• The sample excludes

- Canceled for cause terminations

- Claims that involved a death

- Claims that are being non-renewed in Florida hurricane zones

- Catastrophe claims that were opened more than 6 months after the occurrence of the catastrophe

- Insureds that have been included in the Customer Satisfaction Measurement System (CSMS) sample during the past year

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= = =

H000000578

ICSS SURVEY TIMEFRAMES C">

= = =

I .....,, =

Report distribution = ,__.,,

Survey Claim closure dates Interview dates dates .....,, = =

1st suivay 1996 1/1/96-2125196 2f1 /96-4/2196 5/20/96 = l = C">

2nd survey 2/26/96-4/7/96 ,__.,,

I 413/96-5/14/96 7/15/96 =

\

z 3rd survey 4/8196-7/7/96 5115196-8/13/96 10/15/96

4th survey 7 /8/96-10/6/96 8/14196-11112/96 1/13197 '

5

H000000579

, " Satisfaction has deteriorated recently ~.an~ in'1"'"0¥emem:.

·.;

ICSS COMPLETELY SATISRED''JREHD

Percent

··•·······•··•··••······· ' ; ••• •••••• 77 a ••• •••••••••• ••••••• • ••••• Auto ••• •••• . 77.3 77.1 76.5 __ _ . I -- -----~ - ---- 757 ---------- . ~---- 750 ---74 1 · ...... _ Combined

. 73.6

71.9 72.u

70 =-10.5 -- Property 69.9

I --BaseRne 4095 1096 2096

Source: ICSS

6

= = =

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Satisfaction levels vary across perils, CATs versus non-CATs, and method of settlement

SATISFACTION PERFORMANCE VARIES

• Satisfaction varies across perils

- Water claims have had on balance lower-than-average satisfaction, but results are improving

- Fire receives above-average ratings

- Wind and hail is average

- On-premise theft receive lower ratings than off-premise theft claims

- Smaller perils have on balance lower satisfaction and more variability in performance across years

• Satisfaction on catastrophe claims ls consistently lower than for non-CAT claims

• Satisfaction varies by method of settlement

- Lowest sa1isfaction is associated with independent adjusters

- Highest satisfaction occurs for uninspected and agent-settled losses

7

= = =

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H000000581

'

Satisfaction varies by peril and across years.

' ICSS - PERIL SATISFACTION LEVEL BY YEAR Percent completely satisfied

Peril ICSS baseline Q1 to Q3 1995

Aircraft rt/a

Earthquake 100.0

Explosion 63.4

Fire 75.8

Glass breakage 88.3

Freezing 73.4

lighting 77.1

Mysterious disappearanoe - on premises 61.5

Mysterious disappearance - off premises 74.5

Removal 100.0

Smoke 74.2

Theft-on premises 68.0

Theft- off premrses 80.2

Vandalism 74.2

Vehicles 77.7

Water 66.4

Windstorm and hail 69.4

An other perils 75.9

Theft from auto 68.6

Sewer back-up n/a

Total 70.5

Source: ICSS

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:-0

ICSS 041995 to 021996

100.0

44.7

78.8

75.0

85.2

69.8

79.3

76.8

82.4

43.9

74.3

70.8

75.4

75.2

79.7

68.3

71.1

73.5

69.8

n/a

71.0 8

= = =

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'

Satisfaction is consistently higher for non-CAT claims than for CAT claims.

CATASTROPHE VS. NONCATASTROPHE RESULTS - ICSS

Percent completely satisfied

66.9 71.5 73.1 70.0 73.0

·-· --- .· --.. --- ::

... :. -

.- --

. '

Baseline 041995 011996

Source; <List sources here>

69.1 70.5

021996

003l'E-083mem/lpn0l

C]cAT LJNon-CAT

9

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H000000583

ICSS - Distribution by Method of Settlement CAT vs. Non-CAT (Property)

METHOD OF lST SURVEY PERIOD 1996 2ND SURVEY PERIOD 1996 SETTLEMENT CAT Non-CAT TOTAL CAT Non-CAT TOTAL

Field Claim Employees 45.I 33.6 36.5 41.5 38.5 39.4

Independent Adjusters 36.9 8.3 I5.4 45.0 I I. I 21. I

Uninspected Losses 8.0 22.9 I9.2 7.5 I8.I I5.0

Uninspected Theft 0.4 16.8 I2.7 0.3 17.8 I2.6

QVP 5.I IO.I 8.9 3.0 9.I 7.3

Agent Claim Settlement 0.7 2.5 2.0 0.4 2.6 2.0

Arbitrations and Suits 0.3 1.2 1.0 0.1 0.3 0.2

Blank 3.5 4.6 4.3 2.2 2.5 2.4 Total IOO.O IOO.O IOO.O 100.0 100.0 IOO.O

J:\ICSS\MOSREPTP.XLS ARPC - 8/22/96

H000000584

ICSS - Claim Satisfaction by Method of Settlement CAT vs. Non-CAT (Property)

METHOD OF lST SURVEY PERIOD 1996 2ND SURVEY PERIOD 1996 SETTLEMENT CAT Non-CAT TOTAL CAT Non-CAT TOTAL

Field Claim Employees 71.5 70.2 70.7 66.4 68.2 67.5

Independent Adjusters 66.5 69.6 67.4 69.4 67.4 68.8

Uninspected Losses 80.3 77.5 77.9 83.4 76.5 77.7

Uninspected Theft 79.9 71.9 72.0 75.9 69.9 70.0

QVP 72.3 72.9 72.8 67.4 72.5 71.8

Agent Claim Settlement 68.5 87.4 85.6 88.3 82.3 83.1

Arbitrations and Suits 73.3 65.0 65.8 100.0 80.7 82.0

Countrywide 70.2 73.0 72.0 69.1 70.5 69.9

J :\ICSS\MOSREPTP.XLS ARPC - 8/22/96

H000000585

003Pll.()8Jmem/lpn<li

' DRIVERS OF DISSATISFACTION - Q2 1996 PROPERTY ONLY• Percent

Percent satisfied vs. dissatisfied

Satisfied

• Includes CATs Source: ICSS

,,,,,.---------------------/ J

// Percent responding "no" I /, I

,' I // Sales agent 1 ,' follow-up 9.3 1 / I

Dissatisfied

Adequately informed

Claim hassle-free

Timely claim handling

7 .9

6.5

6.3

I I I I I I I l I I I r

' ...... ,.....,,~ Fair settlement I ~ amount 1 5.9 ' ', I

'-.... I '--------------------~

13

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H000000586

These key factors appear to be consistent over time.

' THE FACTORS HAVE BEEN CONSISTENT OVER TIME

Largest •no 0

Percent

Factor Q41995

Sales agent follow-up 1

Adequately informed 2

Claim hassle-free 3

Timely claim handling 4

Fair settlement amount --, Sales agent involvement 4

Clear explanation given 4

Source: ICSS

Q11996 Q21996

1 1

2 2

3 3

6 4

3 5

5 6

7 7

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H000000587

Like fur overall satisfaction, performance on the individual drivers has recently deteriorated.

' PERFORMANCE DETERMINED AFTER INITIAL IMPROVEMENT

Percent dissatisfied responding •no"

9.3 9.0 ·-·1 Safes agent follow-up

9 r· -·-·-· ·-·-·-·--·-·- 83 -~·-·-·-·- . ·--·-·--~-- 79 8 7.4 __ -,· Adequately informed - ----- --- - ... - ... 6.5 - - - 6.3

6 3 ... - .,. Timely claim handling ~ • • • • • • • • • • 5 5 \ ....... • ,.,.a,1.-· · · · · · . ···'-•• ,_ 5.7 •••••••• •••• -r- 5.9 5.6 - ............ __________ "- I

Claim hassle-free Fair settlement

I 5.0

1096 2096

Source: ICSS - property

'

15

= = =

= -= -

H000000588

' ' KEY FINDINGS

• Overall claim satisfaction has deteriorated over time with significant variation across perils, between CATs and non-CATs and by method of settlement

• lCSS (Internal Claims Satisfaction Survey) initially suggests there are 4 key drivers of satisfaction that are consistent across CSAs, the best and worst MCOs, Auto and property and satisfied and unsatisfied customers. The key drivers are



- Claim hassle-free


Q • For each driver, there are a number of issues that need to be addressed

en ~

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16

= = =

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'

SALES AGENT FOLLOW-UP

ICSS questions

Questions 16

Question 15

Did your sales agent folfow-up to make sure you were satisfied with the claim process?

Was your agent involved in the clalm process to the extent you felt was necessary?

'

Issues

Do the questions adequately gauge Importance?

What does the customer expect from the agent on folfow-up?

In what processes or areas do the customers expect agent participation?

en = 003PH118lmem/tpnCH ~

17

= = =

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H000000590

ADEQUATELY INFORMED

ICSS questions

Question 11 Were you kept adequately informed throughout the claim process?

'

Issues

What does the customer expect by "adequately informed'?

Does what they expect vary by peril and severity?

en = 003PE-OB3mem/tpoCH :-"'

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18

= = =

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H000000591

' ' CLAIM HASSLE-FREE

ICSS questions

Question 17 Was your claim hassle-free?

003Pl!-083mem/lpnCH

Issues

What is meant by "hasslefree"? It does not appear to be viewed the same as unreasonable questioning

Are there different expectations by peril?

19

= = en

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' TIMELY CLAIM HANDLING

ICSS question

Question 12 Was your claim handled in a timely manner?

'

Issues

What do the customers consider timely?

Does this vary by peril or claim type (e.g., severity)?

en

"" 003Pl!-083mem/tpnCH :-0

20

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'

003PE.(183mem/tpnCTI

TIMELY CLAIM HANDLING Percent

' '

BOr,_ ---------------60-

40r-

20 f- --------- ----

~ ..... ...._ __ _1 Completely satisfied

-------------· Claims settled in limeframe

o ..... ~~~~~~-"-·~~~~~~-.i....·~~~~~~......i.·~~~~~~~~ 0-3 4-7 15-30 31+ Time to settle Days

21

= = =

H000000594

'

The key drivers of satisfaction are consistent across geography, office, line, and satisfied versus unsatisfied customers.

' CONSISTENT DRIVERS OF CUSTOMER SATISFACTION

Drivers consistent across:

• CSA

• MCO

• Auto vs. property

• Satisfied vs. unsatisfied customers

'

22

= = en

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= -= -

H000000595

The drivers of satisfaction are remarkably consistent across geographies.

' CONSISTENT ACROSS GEOGRAPHIES (CSAS)

Driver AVP1 AVP2 AVP3

Sales agent follow-up 1 1 1

Adequately informed 2 2 2

Claim hassle-free 3 3 3

Timely claim handling 5 4 4

Fair settlement amount 4 5 6

Care/concern expressed 6 6 5

Source: JCSS

AVP4

1

2

3

4

6

5

23

= = =

H000000596

'

The drivers are supported by examining the differences in high- and lower-performing MCOs.

' ANALYSIS OF BEST VS. LOWEST MCOS*

Percent who said "no"

Sales agent follow-up

Adequately informed

Claim hassle-free


Fair settlement amount

Care/concern expressed

• <FOOTNOTECUTOFFFAX> Source: ICSS

.. . ·12.a

·,_-_11.7

;-11,3

... 12.5

no.a

no.a 18.3

17.6

I

I 10.3

I 11.3

I 9.8

'

C]eest CJ Lowest

14.4

24

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Drivers are the same for property and auto lines.

' CONSISTENT DRIVERS CROSS LINES Percent of dissatisfied responding no

Driver Property

Sales agent follow-up 9.3

Adequately lnforrned 7!J

Claim hassle-free 6.5

Timely claim handling 6.3

Source: <Lisi sources here>

Auto - standard

5.8

4.9

4.6

4.0

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Auto - indemnity

9.4

8.0

7.1

7.5

25

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H000000599

Project No: 00001

INTERNAL CLAIM SATISFACTION SURVEY ***** CUSTOMER RESPONSE FLASH REPORT *****

SURVEY DATE: 04/27/96 ------------------------------------------------------------------------------------------

Please contact Cathy Seymour at the Allstate Research & Planning Center (41S-833-626l) with any questions on this document.

------------------------------------------------------------------------------------------Policyholder Name: SUE BELLEFEUILLE

Respondent Name: Same as Policyholder Respondent Reached At: (407)793-SS9S

Line Code: 70 Respondent Number: 391137

Open Date: 010296 Close Date: 032096

Claim Number: 3893831036 Handling MCO: 389

Desk Location: HBW Agent Number: 78814 Agent Name: BRIAN MURPHY

CSM Name: Leo Fansler CSM Office Code: 322

Question Response

1. Overall satisfaction with claim handling 3 2. What Allstate could have done to improve service given:

THEY COULD HAVE BEEN QUICKER. THAT WAS OUR BIGGEST COMPLAINT.

3a. Spoke to on first contact 3b. Action taken by sales agent/person at sales office 4. Likelihood of renewing insurance with Allstate Sa. Have recommended Allstate to family/friends Sb. Likelihood of recommending Allstate Sc. Recommend against purchasing Allstate:

Question Not Asked

Question

6. Clear explanation given 7. No unreasonable questioning 8. Care/concern expressed 9. Courteous and friendly 10. Repairs made satisfactorily 11. Adequately informed 12. Timely claim handling

Question

Response

No Yes N/A Yes Yes Yes No

l8b. Specific type of phone problem:

Question Not Asked

13. 14. lS. 16. 17. 18a.

Someone at a claim off ice Question Not Asked Very likely Yes Question Not Asked

Question

Fair settlement amount Provided expected coverage Sales agent involvement Sales agent follow-up Claim hassle-free Attempts to reach Allstate by phone problem-free

l8c. Location trying to reach when phone problem occured:

Question Not Asked

Response

Yes No DK No Yes

Yes

H000000600

Project No: 00001


SURVEY DATE: 04/26/96 ------------------------------------------------------------------------------------------

Please contact Cathy Seymour at the Allstate Research & Planning Center (415-833-6261) with any questions on this document.

------------------------------------------------------------------------------------------Policyholder Name:

Respondent Name: Respondent Reached At:

Line Code: Respondent Number:

Agent Name: CSM Name:

Question

ROBERT LUCAS Same as Policyholder (206)531-4102 70 390124 RALPH VILLAVICEN John Nuxoll

1. Overall satisfaction with claim handling

Open Date: Close Date:

Claim Number: Handling MCO:

Desk Location: Agent Number:

CSM Office Code:

020896 032296 4671494047 467 P02 23533 346

Response

3 2. What Allstate could have done to improve service given:

THEY COULD HAVE PROCESSED IT QUICKER.

3a. Spoke to on first contact A Sales Agent 3b. Action taken by sales agent/person at sales office 4. Likelihood of renewing insurance with Allstate

Take some information;arrange for call Somewhat likely

Sa. Have recommended Allstate to family/friends No Sb. Likelihood of recommending Allstate Would not offer an opinion either way Sc. Recommend against purchasing Allstate:

Question Not Asked

Question Response Question -------- -------- --------

6. Clear explanation given Yes 13. Fair settlement amount 7. No unreasonable questioning Yes 14. Provided expected coverage 8. Care/concern expressed Yes 15. Sales agent involvement 9. Courteous and friendly Yes 16. Sales agent follow-up 10. Repairs made satisfactorily Yes 17. Claim hassle-free 11. Adequately informed No 18a. Attempts to reach Allstate 12. Timely claim handling No by phone problem-free

Question

18b. Specific type of phone problem:

THEY SAID THEY WOULD CALL ME RIGHT BACK BUT THEY DIDN'T. I THINK THE CLAIMS PROCESSOR MISPLACED MY FILE.

18c. Location trying to reach when phone problem occured:

I DON'T REMEMBER.

Response --------Yes Yes Yes Yes No

No

H000000601

Project No: 00001


SURVEY DATE: 04/25/96 ------------------------------------------------------------------------------------------


--------------------------------------------------------------------------------------Policyholder Name: CALVIN BROWN

Respondent Name: Same as Policyholder Respondent Reached At: (206)838-0657




Desk Location: DAG Agent Number: 73246 Agent Name: LANA MCLAUGHLIN

CSM Name: John Nuxoll CSM Office Code: 346

Question Response

l. overall satisfaction with claim handling 3 2. What Allstate could have done to improve service given:

HAVE THE ADJUSTOR THERE LATER IN THE EVENING, AFTER 3:00PM.

3a. Spoke to on first contact 3b. Action taken by sales agent/person at sales office 4. Likelihood of renewing insurance with Allstate Sa. Have recommended Allstate to family/friends

Someone at a claim off ice Question Not Asked Somewhat likely No

Sb. Likelihood of recommending Allstate Would be willing to recommend Allstate Sc. Recommend against purchasing Allstate:

Question Not Asked

Question Response Question Response -------- -------- -------- --------

6. Clear explanation given No 13. Fair settlement amount Yes 7. No unreasonable questioning Yes 14. Provided expected coverage No 8. Care/concern expressed No 15. Sales agent involvement Yes 9. Courteous and friendly No 16. Sales agent follow-up Yes 10. Repairs made satisfactorily Yes 17. Claim hassle-free No ll. Adequately informed No lBa. Attempts to reach Allstate 12. Timely claim handling No by phone problem-free No

Q1,1estion

lBb. Specific type of phone problem:

THE PERSON WAS NEVER IN AT THE CLAIMS OFFICE.

lBc. Location trying to reach when phone problem occured:

THE CLAIMS OFFICE.

H000000602

Project No: 00001


SURVEY DATE: 04/26/96 ------------------------------------------------------------------------------------------

Please contact Cathy Seymour at the Allstate Research & Planning Center (41S-833-6261) with any questions on this document.

Policyholder Name: CLIFFORD RIESENBERG Respondent Name: MARY RIESENBERG

Respondent Reached At: (Sl3)777-7S21 Line Code: 70

Respondent Number: 387793



Desk Location: TAM Agent Number: 642SO Agent Name: CHARLES M. JOHNSON

CSM Name: Jim Smith CSM Office Code: 360

Question Response


THEY COULD HAVE COME OUT SOONER. THEY DON'T GIVE A FAIR ESTIMATE.


Someone at a claim off ice Question Not Asked Somewhat likely No

Sb. Likelihood of recommending Allstate Would not offer an opinion either way Sc. Recommend against purchasing Allstate:

Question Not Asked

Question

6. Clear explanation given 7. No unreasonable questioning 8. Care/concern expressed 9. Courteous and friendly 10. Repairs made satisfactorily 11. Adequately informed 12. Timely claim handling

Question

Response

No DK No Yes Not completed No No


Question Not Asked

Question Response

13. Fair settlement amount No 14. Provided expected coverage No 15. Sales agent involvement No 16. Sales agent follow-up No 17. Claim hassle-free No 18a. Attempts to reach Allstate

by phone problem-free Yes


Question Not Asked

H000000603

Project No: 00001


SURVEY DATE: 04/25/96 ------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------Policyholder Name: RITA BROWN

Respondent Name: Sarne as Policyholder Respondent Reached At: (218)765-3908


Agent Name: CHUCK CHARLES J CSM Name: Judith Petray


Claim Number: 4992S839S5 Handling MCO: 499

Desk Location: NAH Agent Number: 05426

CSM Office Code: 361 ------------------------------------------------------------------------------------------

Question Response

l. overall satisfaction with claim handling 3 2. What Allstate could have done to improve service given:

I HAD TO SEND A COUPLE OF STATEMENTS SHOWING THAT THE CARPET WAS REPLACED, IT WAS A HASSLE IN MAILING LETTERS.

3a. Spoke to on first contact 3b. Action taken by sales agent/person at sales office 4. Likelihood of renewing insurance with Allstate Sa. Have recommended Allstate to family/friends Sb. Likelihood of recommending Allstate Sc. Recommend against purchasing Allstate:

Question Not Asked

Question Response -------- --------

6. Clear explanation given Yes 13. 7. No unreasonable questioning Yes 14. 8. Care/concern expressed Yes lS. 9. Courteous and friendly Yes 16. 10. Repairs made satisfactorily Yes 17. 11. Adequately informed Yes l8a. 12. Timely claim handling Yes

question


Question Not Asked

Someone else at the sales office Take some inforrnation;arrange for call Very likely No would be willing to recommend Allstate

Question Response -------- --------Fair settlement amount Yes Provided expected coverage Yes Sales agent involvement Yes Sales agent follow-up No Claim hassle-free Yes Attempts to reach Allstate by phone problem-free Yes

lBc. Location .trying to reach when phone problem occured:

Question Not Asked

H000000604

Project No: 00001


SURVEY DATE: 04/25/96 ------------------------------------------------------------------------------------------

Please contact Cathy Seymour at the Allstate Research & Planning Center (41S-833-626l) with any questions on this document.

------------------------------------------------------------------------------------------Policyholder Name:

Respondent Name: Respondent Reached At:

Line Code:

ROY DURHAM Sarne as Policyholder (609) 696-0190 70

Respondent Number: 382005 Agent Name:



Desk Location: El4 Agent Number: 09500

CSM Name: Jerry De Pietro CSM Office Code: 329

Question Response

i. Overall satisfaction with claim handling 2 2. What Allstate could have done to improve service given:

THEY COULD HAVE HANDLED THE CLAIMS FASTER. IT TOOK ABOUT FOUR MONTHS. THREE MONTHS PREVIOUS THEY CAME OUT AND TOOK SOME PICTURES.

3a. Spoke to on first contact 3b. Action taken by sales agent/person at sales office 4. Likelihood of renewing insurance with Allstate sa. Have recommended Allstate to family/friends

Other Question Not Asked Don't know No

Sb. Likelihood of recommending Allstate Recommend against purchasing Allstate Sc. Recommend against purchasing Allstate:

IT TOOK TOO LONG TO GET THE CLAIM FINISHED.

Question

6. Clear explanation given 7. No unreasonable questioning B. Care/concern expressed 9. Courteous and friendly 10. Repairs made satisfactorily 11. Adequately informed 12. Timely claim handling

Question

Response

Yes Yes Yes Yes Yes Yes No


Question Not Asked

Question

13. Fair settlement amount 14. Provided expected coverage 15. Sales agent involvement 16. Sales agent follow-up 17. Claim hassle-free lBa. Attempts to reach Allstate

by phone problem-free


Question Not Asked

Response

Yes Yes Yes No Yes

Yes

H000000605

Project No: 00001


SURVEY DATE: 04/26/96 ------------------------------------------------------------------------------------------

Please contact Cathy Seymour at the Allstate Research & Planning Center (41S-833-6261) with any questions on this document.

Policyholder Name: TERRY HOWELL Respondent Name: Same as Policyholder

Respondent Reached At: (603)778-8478 Line Code: 70

Respondent Number: 387608



Desk Location: NEJ Agent Number: 13949 Agent Name: STEVEN W. WENTWORTH

CSM Name: Jim Murray CSM Office Code: 326

Question Response


ORIGINALLY THE CONTRACTOR DIDN'T SHOW UP FOR A COUPLE OF MONTHS. MY WIFE CALLED ALLSTATE AND THEY GOT THEM TO COME. I WAS SATISFIED WITH THE WORK. ONCE WE GOT THE SECOND CONTRACTOR IT WAS SETTLED PRETTY FAST.


Someone at a claim off ice Question Not Asked Very likely No

Sb. Likelihood of recommending Allstate Would be willing to recommend Allstate Sc. Recommend against purchasing Allstate:

Question Not Asked

Question Response Question Response -------- -------- -------- --------

6. Clear explanation given Yes 13. Fair settlement amount Yes 7. No unreasonable questioning Yes 14. Provided expected coverage Yes 8. Care/concern expressed Yes lS. Sales agent involvement Yes 9. Courteous and friendly Yes 16. Sales agent follow-up N/A 10. Repairs made satisfactorily Yes 17. Claim hassle-free Yes 11. Adequately informed Yes 18a. Attempts to reach Allstate 12. Timely claim handling Yes by phone problem-free Yes

Question


Question Not Asked


Question Not Asked

H000000606

Project No: 00001


SURVEY DATE: 04/25/96 ------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------Policyholder Name: HARRY MILLER

Respondent Name: Same as Policyholder Respondent Reached At: (205)681-4222


Agent Name: BURT STUMAN CSM Name: Bryan Walker

Question

l. Overall satisfaction with claim handling



Desk Location: KLJ Agent Number: 90528

CSM Office Code: 363

Response

3 2. What Allstate could have done to improve service given:

THE SHOULD HAVE RESPONDED FASTER.

3a. Spoke to on first contact 3b. Action taken by sales agent/person at sales office 4. Likelihood of renewing insurance with Allstate

Someone at a claim office Question Not Asked Very likely

Sa. Have recommended Allstate to family/friends Sb. Likelihood of recommending Allstate Sc. Recommend against purchasing Allstate:

Question Not Asked

Question

6. Clear explanation given 7. No unreasonable questioning 8. Care/concern expressed 9. Courteous and friendly lO. Repairs made satisfactorily ll. Adequately informed 12. Timely claim handling

Q:uestion

Response

Yes Yes Yes Yes Yes Yes No


Question Not Asked

Yes Question Not Asked

Question

13. Fair settlement amount 14. Provided expected coverage 15. Sales agent involvement 16. Sales agent follow-up 17. Claim hassle-free 18a. Attempts to reach Allstate

by phone problem-free


Question Not Asked

Response

Yes Yes DK No Yes

Yes

H000000607

Flash Reports

140~~-..-~~~~--.-~~-.-~-.-~~...-~-.

120

100

80

60

40

20

0 en >i cu -(1)

c

E Cl> ...,, - c: ~ (1) Cl>

(/)

c: 0 f? (1)

a.

...,, E 0 I..

z J2 c:

(.) cu I.. I..

...,, 0 c: ...,, 0 (.)

. (.) en ·-~

H000000608

Economic Impact of Satisfaction

• Customer satisfaction directly effects the customers likelihood to renew and recommend Allstate

H000000609

H000000610

Work in progress

• Determine results of Claim Satisfaction Measurement System.

• Obtain and analyze satisfaction drivers by line code.

• Obtain and analyze satisfaction drivers on CAT versus. Non CAT claims.

• Obtain and analyze satisfaction drivers on property only by CSA to determine if issues vary by market.

• Obtain and review CAT perils and locations to determine if CA Ts effect non CAT results.

• Review Flash Reports

H000000611

Preliminary Recommendations

• Conduct additional data check weeks

• Further analyze existing data

• Hold customer focus groups

• ·conduct phone surveys

• Partner with existing Agent Claim Handling Team

• Conduct more in- depth study of Flash reports

• Study economic impact within various perils

• Conduct employee interviews in markets with diverging results

H000000612

Additional Questions

• Do customer satisfaction factors differ on CAT losses?

• · L~~·://(JL d0Lo11UXL't_C] '-fvetAd ~'; . 4{M«(L~

H000000613

CONFIDENTIAL

Overview of Homeowners CCPR

ALLSTATE INSURANCE COMPANY

Review with senior management

September 6, 1996

This report Is solely for the use of client personnel. No part of il may be circulated, quoted, or reproduced for distribution outside 1ha client organization without prior written approval from McKinsey & Company.

This material was used by McKirisey & Company during an oral presentation; it is not a complete record of the discussion.

003PB-084memCH

H000000614

HOMEOWNER CCPR DEBRIEF

SEPTEMBER 1996

GOODMORNING

FIRST, ID LIKE TO SAY WE HA VE HAD A REALLY GOOD TWO WEEKS

YOU HA VE WORKED HAD AND ACCOMPLISHED A LOT ...

SOMETIMES P AINFULLY ... BUT PRODUCTIVELY

YOU'VE LEARNED A NEW WAY TO THINK AND WORK AT ALLSTATE

YOU ARE CCPR! ! ! !! !

BEFORE WE GET STARTED rs LIKE TO INTRODUCE OUR GUEST.5 tr\ 1'c.,e _l!\~~be - S~ Vf'.f p R~kD~it-Ro~ ~~n.fu PERSONAL LINES PROPERTY SR VICE PRESIDENT AND IS A MEMBER OF THE ALLSTATE BOARD OF DIRECTORS RON IS RESPONSIBLE FOR THE REVENUE AND INCOME FOR ALL PERSONAL AND

PROPERTY LINES FOR ALLSTATE

AS SUCH YOU CAN IMAGINE HE IS VERY INTERESTED IN OUR WORK AS WE ARE IN HIS

THANK YOU FOR JOINING US TODAY RON

WE ARE IN THE VERY EARLY PHASES OF OUR WORK ... ALMOST PRE FACT FINDING

ONE FACT WE KNOW FOR SURE IS THAT HOMEOWNER CLAIM HANDLING IS BIG, COMPLEX, MULTI PERIL, MULTI POLICY, AND HOLDS GREAT ECONOMIC OPPORTUNITY FOR US FROM A LOSS CONTROL, EXPENSE MANAGEMENT AND RENEW AL PERSPECTIVE (CUSTOMER SAT)

TODAY WE WILL GO THROUGH A CONDENSED VERSION OF WHAT WE KNOW AND WHAT WE NEED TO KNOW IN EACH OF THE BUCKETS WE ARE LOOKING AT

H000000615

WE WILL BEGIN THE PRELIMINARY DESIGN OF OUR FACT FINDING PROCESS

VERY QUICKLY, LETS POSITION THE CCPR METHODOLOGY

(SHOW SLIDE)

~9~~~~~ T.

»~~~

H000000616

003PE-073mem/mcCH

The overall objective of the homeowner redesign is to optimize total payout, efficiency, and customer satisfaction. Trade-offs, however, will be required to balance all three objectives.

HOMEOWNER REDESIGN OBJECTIVES

Primary objectives

• Reduce loss opportunity

• Optimize expenses

• Maintain or enhance customer satisfaction

Balanced set of objectives Minimize opportunity and pay fair settlement on every claim

Customer satisfaction

Set expectations and meet or exceed every time

Efficiency

Optimize claim expense by leveraging skills and scale

H000000617

--·· · . ...._...,.:

Based on the work done to date, the team needs to address the perils to varying degrees as well as address important cross-peril issues.

CCPR HOMEOWNER'$ TEAM CHARTER

Team charter

Team objective Optimize total payout, efficiency

and customer satisfaction

Redesign peril-specific handling strategies/practices and supporting organizational elements • All aspects for non-fire/water

s required for fire and wa

Address important cross-peril issues

003PE-073mem/mcCH

H000000618

The charter of the design team is somewhat complicated by the fact that a fair amount of work has already been done in the water and fire perils.

SIGNIFICANT WORK HAS BEEN DONE IN HOMEOWNERS

Initiative ·

Water process

Fire initiative

Description

• Initiated by the Homeowners Initiative Team (HIT) using CCPR methodology

• Implemented through the PIC • Detailed description provided in today's session

• Patterned aner water process implemented by PIC in response to adverse severity trends

• Process developed using CCPR methodology • Process being tested in 7 sites • Detailed description provided in today's session

003PE-073mem/mcCH

3

H000000619

Because of previous work in Homeowners, the team's charter will vary somewhat by peril as determined by an up-front diagnostic.

HOMEOWNERS CCPR TEAM CHARTER

Gather Analyze Debrief Test and

Plan and implemen-

data data design refine talion

Peril

CPL -----Vandalism -----Theft -----Wind/hail -----Water* -----·

Roll out

003PE-073mem/mcCH

ILLUSTRATIVE

Need determined by results of diagnostic

Manage perform-a nee

-----· Fire ----------------------------------------

• Key issues believed to be in integrating measurement and staffing

H000000620

In addition to the peril-specific work, the team must address some important cross-peril issues.

CROSS-PERIL ISSUES

Issues Subissues

QVP • Key drivers of a successful program • Need to change vendor role • Need to change claim rep role • Increase/decrease QVP usage

Replacement vendors • Key drivers of a successful program • Establish national vendors • Need to increase replacement activity • How do we sell the customer on replacement

Agent claim handling • Is it effective? when and why? • Should its use be changed? in which circumstances? • Should authority levels be reduced? • Should program be eliminated?

003PE-073mem/mcCH

• Is there a more effective method to drive quick settlements and customer satisfaction/retention on small claims?

Structure vs. contents • Can same adjuster handle both effectively? • Should handling be specialized by coverage? by peril? • Are best practices needed for each peril? • How do specialized MCOs segment structure and contents?

Peril coding • Establish subperil codes or new ones to enhance tracking • Is a matrix needed for uniformity to identify proper peril code?

s

H000000621

003PE-073mem/mcCH

In addition to the peril-specific work, the team must address some important cross-peril issues.

CROSS-PERIL ISSUES (CONTINUED)

Issues Subissues

Measurement • What should be captured? • How can we simplify? • Need to tie to performance management • How should customer satisfaction levels be measured?

Systems support • What internal systems need to be developed/enhanced to capture data? • What external resources can be used, i.e., ACCUPRO?

Customer satisfaction • What do our customers want? • Do their expectations differ by coverage/peril? urban/rural? • What role does CSC agent play in customer satisfaction? • What skill sets are needed by coverage, peril, process step? • What do our current training modules look like? are they effective?

are changes needed? • Are matrices needed? scripts? type?

Staffing • What are the current staffing issues? • Where are we filling J58 additions to staff? • What are current production levels? average time spent on each claim type? • Is field inquiry needed?

Management • How do we change culture? • How do we get management buy-in and ownership?

CAT handling • Is special process needed? • What should define a catastrophe? • How do we minimize impact on staffing during CAT periods?

H000000622

I

I

I I-

I

I ' ' '

Based on the current understanding of the fact base and process, a preliminary project approach and timeline has been developed. As we learn more, this will undoubtedly change.

PRELIMINARY PROJECT APPROACH AND TIME LINE - DESIGN TEAM

Review Prepare for Conduct Design, Study and assess additional

current analytical analysis test, and

prework analysis phase

and debrief refine

Description • Assemble team • Review and • Design • Conduct • Redesign • Conduct assess existing surveys, additional processes

high-level analyses and interview analyses - Field-based financial refine guides, etc. • Conduct formal - Focused on analysis hypotheses • Arrange for debrief, high-dollar

• Plan initial • Identify logistics tor fact establish areas project phases additional fact finding priorities, and - Define

finding/ • Train review conduct high- measures and analysis teams (as level design measurement required necessary) approach - Open files • Conduct tests -QVP - Field-based -ORG - Heavy

diagnostic measurement - Analyses of focus

replacement • Develop staffing vendors model

-Assess existing staffing levels(?)

Develop implementation package

• Codify results • Determine what

implementation package looks like - Non-

negotiable - Negotiable Continue to develop measurement system

Timing Early August Late August - September October - December - March April early September November

003PE-073mem/mcCH

PRELIMINARY

Design and execute roll out

• Design approach

• Develop support materials

• Schedule • Train imple-

mentation teams (as necessary)

• Execute rollout

May-TBD

1-

H000000623

003PE-075memCH

SUBTEAMS FOCUSED ON 5 IMPORTANT ISSUES

Problem solving area

Economic analysis of homeowners performance

Fire peril

Customer satisfaction

HIT survey analysis

Water peril

Rationale

• Understanding the economic performance and trends will help focus the work on the areas of greatest economic opportunity

• Understanding the work done to date is the logical 1st step for the fire team

• Up front analysis will help determine what additional design work may be desirable, potentially impacting the team structure

• Customer satisfaction will be a critical component of the homeowner's redesign

• The team needs a sense of existing performance as well as drivers of satisfaction

• A fair amount was invested in the data gathering phase of the Homeowner Initiative

• Taking full advantage of the existing information will allow us to more sharply define our analysis

• The integrated homeowner's design cannot be complete without a detailed understanding of all component pieces, including water

H000000624

Property lines represent approximately $3 billion in annual losses, with nearly 40% coming from catastrophes in the last 3 years

i:\clmteam\prop

ALLSTATE PERSONAL LINES INCURRED LOSSES 0/o DISTRIBUTION

12000 ($Millions)

10000 $1,841 18.3°/o

8000

6000 Property $1,217

4000 81.7°/o 91.0°/c,

2000 /Auto $109 9.0°/o

0 1995 x Cats 3 Yr Avg 93-95

CATS

•Auto DProperty

H000000625

:ach hiomeowners form has a unique peril distribution, with fire and water having the largest overall impact

ALLSTATE PERSONAL LINES PAID LOSS DISTRIBUTION BY PERIL - X CATS

Owners DECEMBERYTD, 1995 Condo

Theft&Jewl 13.1

otltl!t ECIAEC

6:6

CPL 12.9 Other

1.5

Fire 35.2

Lightning3.4

Renter

i:'clmtcamlprop

Other 7.4

ightning 1.9

Water6.6

•fe-f OtherEC/AEC3.0

'Windstorm .4

Winds tor 1.2

Other EC/AEC

4.9

CPL 9.4

Fire 13.9

Lightning 1.2

Total

Theft&Jewl 14.4

Other EC/AEC

6.4

Water 20.4

CPL 12.9

Other 1.5

Fire 33.9

Lightning 3.3 ID

H000000626

Geographic concentration is an issue in the smaller residential property forms

O'ther 64.4

Owners

ALLSTATE PERSONAL LINES PROPERTY LINES PIF DISTRIBUTION

JUNE, 1996

California 11.9

Florida 8.0

New Jersey 5.3

111inois 8.4

Condo

Texas New York 12.5 Illinois 6.5

5.4

Renters

California 8.0

Mobilehome

Florida 30.6

Florida 20.8

California 9.8

Michigan 6.3

S Carolina N Carolina

i:'<:lmteam\prop 5.4 6.2 I \

H000000627

There is a high opportunity percentage in off-premise theft, vandalism, water, and "unknown."

ACHIEVING OPERATIONAL EXCELLENCE IN CLAIMS HANDLING

Percent opportunity

Opportunity by peril

46 44

39

34 34 30

Average opportunity

=21%

27

003PE-073mem/mcCH

-f----- --------i..---~- ---------·--- ---- , ' 19 --~--- - ---------·

Off- Vandalism Water premise theft

Source: Homeowners claims closed file review

Unknown Light-ning

Theft from auto

Onpremise theft

Wind and hail

17

Fire

11---'

H000000628

Adjusting for the number and size of loss in each peril, the largest opportunities are in the perils of water and fire.

CONCENTRATION OF OPPORTUNITY Percent*

.--------__, ............................................................... ,__ ______ _,

Other 21 19

Unknown 1==::=3=::==t:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::1---4----1 Theft ti 10

1---------t·······························································t--------<

Wind/hail 22 18

1---------t ............................................................... t--------i

22 Fire 30

Water 16 27

1--------+"•""""""""""""""""'"""""""'""'""""

Total losses Total opportunity

• Based on average of 1992-94 Source: Homeowners claims closed file review

003PE-073mem/mcCH

/2 /

H000000629

The overall opportunity is concentrated in the process steps of coverage, investigation, evaluation, and recovery I subrogation.

CLAIMS ACTIONS

Percent opportunity

Notification Fraud Negoti

ation Replacement

Litigation management

003PE-073mem/mcCH

CAT

21.0* ~-····· .. ·=0.4=·········

~~ ......... C 1.0 ::J ......... C 1.0 ::J ........ . B _ __I 2.0 I

r:-:i·········c 1.o:i·········

r--1._0 --.---G--~ Total

Does not add due to rounding Source: Homeowners claims Closed File Review

H000000630

KEV FINDINGS

• Existing HIT fact base ls accurate and represents a substantial 1st step

- Utilized a comprehensive review form

- Reviewed 457 closed files from 5 markets•

- Findings primarily focused on opportunities in water and fire

• However, since the focus of the HIT analysis was to broadly prioritlze opportunities within perils, further work will be required on the detafts of specific perils and cross-peril issues

- Fine tune survey form where necessary

- Increase sample size in selected perils

- Perform field reinspections to expand fact base

• Arlington Helghts, Austin, Denver. Newburgh, Seattle

· 003PE--0MmemCH

15

= = en

=

z p

= <..n = ....

H000000631

Field Reinspections

• Provides a powerful tool for review team and managers.

- First hand field evaluation of loss damages

- First hand evaluation of adjuster technical skill level.

- Direct customer contact during claim process.

- Direct assessment to adherence to claim process.

I l.p

H000000632

INITIAL HOMEOWNER INITIATIVE TEAM FILE REVIEW SAMPLE

Explosion Vehicles Mysterious disappearance off premises Glass

1.8% 1.1% 0.8%

0.7% Credlt card 0.2% sl,! 0.2% Other 5.3% Number of fifes = 43

Theft on premises 9.6% Theft off premises 1.8% Theft {auto) 3.1% Number of files = 66

Freezing Number of files = 14

CPL Number offiles = 11

Water Number of flies= 93

Wind/hail Number of files= 111

Fire 17.3% Llghtnfng 2.8% Smoke 1.9% Number of files = 97

003PE--082mem0!

11---

= = =-

H000000633

Work Plan

• Address Peril Segmentation

• Finalize Review Form

• Select Survey Demographics

• Select Audit Parameters

• Establish Review Team

• Train Review Team

• Schedule Field Reviews

• Execute

H000000634

KEY FINDINGS

We feel comfortable that the water process was designed based on a statistically significant, representative fact base and the process design addresses the significant areas of opportunity

- A combination of HIT findings and CSA base line surveys produced a large sample size and consistent findings

- The water process addresses the major areas of opportunity, and it appears to be working

• However, there are 2 issues the design team must address - they fall into the areas of measurement (including customer service) and staffing

• For measurement, we recommend a 2-step approach

- Consolidation/refinement and agreement on calculation method

- Use water as a prototype/pilot for developing a systems-supported measurements system

• The team Is not ready to make staftlng recommendations. Additional analysis is required

D03PE-08()mem/tpnCH

I CJ

H000000635

The file review conducted by the Homeowners Initiative team was supported by consistent findings in the baseline process conducted. prior to water process implementation. In total, over 3,000 files were reviewed with very consistent findin~. •

WATER OPPORTUNITY Percent

Number of water files reviewed -108

lnvestl-Notifica!I on Coverage gallon

CSA baseline review

H.1:r. 38.G 15.0

Virginia (198 liles reviewed)

26.9 9.3

Valley Forge (247 toes reviewed}

61.6 14.5

North Texas (275 fifes reviewed)

46.8 25.9

Seattle (253 files reviewed)

27.2 19.5

New York Matro (200 files reviewed)

25.1 12.7

Nashville (219 files reviewed)

33.9 19.3

Michiana (204 files reviewed)

36.2 17.8

Maryland (197 files reviewed)

30.9 7.4

Frau cl Evaluation

15.0

38.4

9.4

22.4

21.4

21.0

16.B

17.8

17.4

l,, (~

Replace- Litigation Negotiation ment manage-

ment

003PE-080mem/ tpnCH

Recovery CAT

12.G =60%

25.4

14.4

20.6

31.9

41.1

::!2.1

28.1

44.3

r)q, /

H000000636

We believe that the redesigned water process addresses the significant areas of identified opportunities.

PROCESS ADDRESSES SIGNIFICANT AREAS OF OPPORTUNITY

Coverage

Opportunity Percent

38

Investigation Evaluation

15 15

Description of how water process addresses opportunity

• Analytical approach • Training • Mitigation vendor • Forms • Forms • On-site Inspection/ • Training • Field inspections evaluation • Field inspections • Measurements • ACUPRO • Measurements • Scripts • Measurements • Timing requirements for • Timing requirements • Ride alongs

inspections and contact • Tier chart • Reinspections • Legal Interpretation of • Proper tools • Training

coverage issues by • Forms CSA •ITEL

• QVP taken out of • Framework for making coverage decisions repair vs. replace

decisions

We believe the new process can capture the opportunity

003PB-080mem/ tpnCH

Recovery

12

• Analytical process • Cause and origin first • Forms - template

and file •Timing • On-site inspection • Proper tools

-Recorders -Photos

'2-1

H000000637

It is our understanding that the water process has had s1gnificant impact on water closed costs. However, there is wide variation on .interpretation of performance and trends. One of the issues we will talk about is the need to derive consistency and/or understandingtbetween the two approaches

WATER PROCESS RESULTS

Closed costs; percent

CSA

Northern California

New Jersey

Texas South

Texas North

Florida East

Florida West

Phoenix

Approach 1 Manually tracked water Approach2 process measurement 015 retrievals

·53.1 -8.8

-58.4 ·8.6

-45.2 l 0.6 ·41.8

-36.9 j -8.9 ·52.1

·60.9 -0.9

003PE-080men\/tpnCH

H000000638

003PE--080mem/lpnCH

There are a number of measurement-related issues that must be addressed.

MEASUREMENT ISSUES

• Inconsistently between OIS and manually tracked

• Too many measurements

• Manually calculated measures are prone to mistakes/manipulation and are time consuming to track

• Are they right for the field?

• CWP measurement - Is it being measured accurately?

• Does the water process meet customer requirements? (Can ICSS be done by peril?)

• Inconsistency in obtaining results from CSA to CSA

• Soma measurements need clarification

H000000639

Staffing needs to be fact-based and dependent on factors that may be market-specific. We need to examine the staffing model in light of the following factors.

STAFFING ISSUES

• Is it fact-based?

• Talent depletion

• Claim count fluctuations

• Geographic considerations

• How should water peril staffing integrate with staffing for other perlls?

003PE-<J80mem/tpnCH

H000000640

For measmement, the team recommends a two-step approach.

MEASUREMENT RECOMMENDATIONS

Refine/consolidate key measures

• Internally analyze •Field interviews •Team/PIG interviews •Debrief • Customer interviews • Explore opportunity to track ICSS by peril • Consider independent CWP survey

Explore options to use water process for measurement system

• Interview Jack Pepping • 9/4/96 Glen overvlew of ADS and CDS • Study system capabilities

003PE--OSOmem/tpnCH

H000000641

Again, a number of issues must be resolved before making staffing by peril recommendations.

STAFFING RECOMMENDATIONS

• Interview Dan Hebel

• Interview Dave Mueller

• Field interview

• Review time study

• Interview Morton

• Secure current staffing model

003PB--080mern/tpnCH

H000000642


• The current Fire Gap process was implemented in response to adverse severity trends In 7 CSAs. Preliminary results lnltlally appear highly variable, but on balance positive

• However, the team believes - The existing fact base is too Hmited in terms of sample size to support a

broad-based redesign effort and perhaps dated








003!'E--08lmem/ tpnCH

= = =

-0

= 0 = c:: " __, 0 z

H000000643



30.3 34.1

12.811.3

·2.0 30.1

..

New Jersey

Maryland Vlrglnla


54.1

-9.4

Florida west

NY metro

27.4

39.0

Florida east

003PE--OS1mern/tpnCH

CJ YTDvariance prior to test

0July:3MM

30.2 30.0

11.0

New England

-8.2 6.8 6.1


= = =

H000000644

It appears that the opportunity varies dramatically by loss type, suggesting the need for segmenting fire losses. However, the sample size within each segment is currently too small to draw de!mitive conclusions.

•

OPPORTUNITY BY LOSS TYPE

Fire loss distrlbuUon Percent; {number)


Lightning loss


Other minor loss

Total loss

Minor smoke damage




Total loss

Partial structure

Minor smoke damage

Other minor losses

t-----, I q.82

i----' I I

0.(72 t--~ I

I o.17o

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1.90

1.39

1.90

= = =

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Index= 1.00 (17%)

Source: Homeowners claims closed tne review

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Insight into additional opportunities not surfaced in the filitial file review is needed prior to redesign.

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OPEN ISSUES PRELIMINARY




• Should there be fast track settlements? If so, at what dollar level or nature of claim?


• What Impact does FRC payments have on the overall evaluation?


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Verify loss type distribution

Description

• Using systems data, profile fire losses by taking a representative sample

• UtUize output to determine appropriate sampllng for additional analyses and provide foundation for staffing modal


• Interview claim reps, managers, and process specialists - Understand the process -Surface further opportunity



• Review files In the process (both open and closed) - Understand process further - Gauge process effectiveness -Test modified review form(s} - Enhance sample size - Identify remaining opportunity

areas/Issues


• Increase sample sizes rn light of distribution and open issues by conducting open and closed tile reviews at 3 to 6 additional sites

•Conduct interviews with claim reps, management, and CPSsurface areas of opportunity and process possibilities

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INTRODUCTION

• The team's goal is to identify and understand the key drivers of satisfaction to be used during the design process t

• There are a number of important analyses that the team still needs to complete

• Therefore, we are unabfe to share definitive recommendations at this time, but we wm share our work In progress

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KEV FINDINGS

Overall claim satisfaction has deteriorated over time with significant variation across perils, between CATs and non-CATs and by method of settlement

• IGSS (Internal Claims Satisfaction Survey) initially suggests there are 4 key drivers of BIS satisfaction that are consistent across CSAs, the best and worst MCOs, Auto and property and satisfied and unsatisfied customers. The key drivers are



- Claim hassle-free


• For each driver, there are a number of issues that need to be addressed

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Satisfaction has deteriorated recently alier.anwtial in'1"-0Yenten1:.

ICSS COMPLETELY SATlSFIED''mEND

Percent

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····················•4••• . ••• ...... • n 8 •• • ••• ••• ••• •••• • ••• • ••• • • Auto •••••• · n.s 11.1

75

Source: ICSS

76.5 -- - . ..... ---.-.------ 75.7 ----------- ~o ....................

74.1 · --- Combined 73.6

71.9

; . ·.~·~·

4095 10.96

Property 69.9

I 2096

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Satisfaction levels vary across perils, CATs versus non-CATs, and method of settlement

SATISFACTION PERFORMANCE VARIES

• Satisfaction varies across perils

- Water claims have had on balance lower-than-average satisfaction, but results are improving

- Fire receives above-average ratings

- Wind and half is average

- On-premise theft receive lower ratings than off-premise theft claims

- Smaller perils have on balance lower satisfaction and more variability in performance across years ·

• Satisfaction on catastrophe claims ls consistently lower than for non-CAT claims

• Satisfaction varies by method of settlement

- Lowest satisfaction is associated with independent adjusters

- Highest satisfaction occurs for uninspected and agent-settled losses

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DRIVERS OF DISSATISFACTION -021996 PROPERTY ONLY•

Percent

Percent satisfied vs. dissatisfied

Satisfied

• Includes CATs Source: ICSS

,,.---------------------/ I /./"' Percent responding "no" I

/ I // I

/"' Sales agent 1 // fo!low-up 9·3 1

/ I

Dissatisfied

Adequately informed

Claim hassle-free


7. 9

6.5

6.3'

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...... , ...._,, Fair settlement \ ...... , amount 1 5.9

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Conformance Levels - ICSS Process Assumptions

Percent Who said "No" Not'at all .X1y Satisfied 11211 11311 11411

d I2!fil #Responses 279 343 692 1743 9044 12101 o/o Distribution 2.2 3 5.8 14.5 74.6 100.0

Key Satisfaction Drivers:

@clear explanation given 50.4 38.1 32.7 17.3 4.9 ~-No unreasonable questioning 36.4 20.2 15.1 7.2 2.9

- Care/concern expressed 59.5 45.4 25.0 7.1 1.4 Q9 - Courteous and friendly 36.9 27.2 11.8 4.0 0.4 Q10 - Repairs made satisfactorily 33.5 23.1 19.2 7.1 2.6

11 Ade uatel informed 73.6. 70.2 41.3 21.3 4.0 - Timel:t claim handlln9 54.1 51.4 33.8 11.9 1.5

Q13- Fair settlement amount 55.4 34.0 29.4 9.8 1.8

~Provided expected coverage 47.1 34.2 29.9 18.7 6.3 Sales agent Involvement .di:I? 38.1 34.3 24.1 12.8 Sales agent follow·UQ ™ 67.7 65.9 57.5 ~7.2

g11 - Claim hassle-free 62,:! 2§,Z ~::i.Z j2 j j,a

Q18a -Attempts to reach Allstate 38.7 40.4 23.1 12.6 3.4

by phone problem free Avg. of 13 drivers: 51.4 42.8 30.6 16.2 6.2

' - 3'1-

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Flash Reports

140.....--~-..-~-.-~-.-~-.-~--.-~~.------.

120

100

80

60

40 20

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Preliminary Recommendations

• Conduct additional data check weeks

• Further analyze existing data

• Hold customer focus groups

• Conduct phone surveys

• Partner with existing Agent Claim Handling Team

• Conduct more in- depth study of Flash reports

• Study economic impact within various perils

• Conduct employee interviews in markets with diverging results

H000000655

H000000656

FIRE TEAM UPDATE AND PRELIMINARY RECOMMENDATIONS OCTOBER 11, 1996

H000000657

CONFIDENTIAL

Fire Team Update and Preliminary Recommendations


Team debrief

Oct.ober 11, 1996

This report is solely for the use of client personnel. No part of it may 'De c:itcufat:ed, quoted, or re~roduced for distiibution oulside the client Ol'g'!nlzation without prior written approval from Mcl<in.sey &: Company.

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The fire team visited eight CSAs in a 2-week period conducting dosed file reviews, reinspi:ctions and employee interviews.

ACTIVITIES TO DATE

• Visited 4 fire gap test sites

-Florida, East

- Florida, West

-Maryland

-New York Metro

• Visited 4 nonfire gap sites

-Denver, CO

-North Texas

-Valley Forge, PA

- Northern California

• Reviewed 188 closed files ( 152 input in the database}

• Conducted 24 reinspections

• Interviewed over 32 field personnel

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During our site visits, we found the fire gap process had addressed some areas of opportunity; ~wever, there are still areas of opportunity to be addressed.

KEY LEARNINGS

• While some elements of fire gap process appear 10 be working, it still does not capture all the major pockets of the opportunity. In addition, the appfoation of the process Is not being consistently applied

• Stgnlficant opportunltles exist, particularly in 1he following areas

- Process-related issues

. Contents

. Clean vs. replace

. Managing vendors

. Evaluation

. Subrogation

- Other management-related Issues

• Therefore, we propose the following next steps

- Additional in-depth analysis of the collected data

- Preliminary design of structure and contents processes

- Determining criteria and timing for fire test

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KEY LEARNINGS

c)· While some elements of fire gap process appear to be working, it still does not capture all the major pockets of the opportunity. In addition, the application of the process ts not being consistently applied

• Significant opportunities exist, particularly in the following areas

- Process-related issues

• Contents

. Clean vs. replace

. Managing vendors

• Evalua11on

. Subrogation

- Other management-related issues


- Additional In-depth analysis of the collected data



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Creation of the fire gap process was a result of A VP Mike Donohue's request for a temporary "g~p" process for seven CSAs with F&L severity concerns.

FIRE GAP PROCESS

Design

• CPS Design Workshop utilizing learnings from the water process

• The work was focused on getting Allstate eyes on fire losses

Communlcation/rollout

• CPS were the process owners and responsible for the rollout and field training

4

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For the most part, the CSAs are waiting for a full-blown fire implementation.

IMPACT OF FIRE GAP PROCESS

Focus of fire gap

• Initiating faster customer contact

•Capturing additional measurement information through form compfiance

• Facilitating more management involvement

Impact experienced

• Interviews with field personnel and reinspection indicate positive impact on customer satisfaction

• Though there is some variance across sites, information captured in the forms is not used to add value to the process

• For the most part, manager involvement is primarily focused on pushing the file to closure

5

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While the fire gap sites show an approximate 5-point improvement, there is still significant opportunity in both groups.

OPPORTUNITY BY FIRE GAP SITES AND NON·GAP SITES

Percent

Gap sites

33.0

CSA1

222

CSA2

Non-gap sites

29.9 279

CSA 1 CSA2

Source: Team analysls of fire CFR

16.8

9.3

I I CSA3 CSA4

264 24.4

CSA3 CSA4

Overall opportunity

22.2

D Gap sites

Overall opportunity

27.7

Non-gap sites

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The greatest opportunity exists in evaluation of structure and in recovery across both gap and m:mtest sites.

COMPARISONS OF AREAS OF OPPORTUNITY BETWEEN GAP TEST SITES AND NONTEST SITES

Gap test sites - total opportunity 22.2%

Fraud

0.6 0 0 7.6 1.0 0.3 1.6 1.7 0.5 1.4

Nontest sites -total opportunity 27.7"A.

Carpet

Fraud replace-ment/ restoratlo

1.3 1.1 0 8.5 1.1 0.9 3.1 4.5 0.7 0.4

7.5

6.2

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KEY LEARNINGS

• While some elements of fire gap process appear to be working, it still does not capture all the major pockets of the opportunity. In addition, the application ot the process is not being consistently applied

~- Significant opportunities exist, particularly in the following areas - Process-related Issues

• Contents

• Clean vs. replace • Managing vendors • Evaluation • Subrogation

- Other management-related Issues





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Contents is a large portion of the oppotj.Unity.

CONTENTS ISSUES

• Limited or no vendor management or direction

- Vendor determines clearing

- Paying cleaning bills as submitted

- Pack out decisions made by vendor

- Paying O&P on cleaning bills and/or appliances that are replaced

• Lack of adjusters' ability to determine cleaning vs. replacement

- Few contents specialists in place; however, there are significant issues relating to their experience and work load

• Inventory issues

- Adjuster not listing inventory- customer submits list

- Adjuster not verifying inventory of nonsalvagable items

- Lack of verific8tion of LKQ for replacement

- Salvage not being addressed

- Lack·of specific information on nonsalvagable items

• Lack of adequate price

- Inadequate research on replacement costs

- Minimal and/or insufficient depreciation being applied

- Paying FRC up front before items are replaced

9

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Opportunity is especially large in contents cleaning.

CLEANING VS. REPLACEMENT- CONTENTS

Percent r. , ·:I C1ean1n9

Percentage of contents

Source: Team analysis of lire CFR

~-----------------------, I I l Opportunity in 1 I contents cleaning I I I I I I I 1 I

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There is a very high opportunity in contents deaning especially when a vendor is involved.

CONTENTS CLEANING

Percent

Was contents involved In the claim 100% = 155 claims r--------------------------------------1

I 100% = 88 claims ·-·-··--·--·· 88 claims I 1 Other 20 15 I

Vendor No

Yes Claim rep

Source: Team analysis of fire CFA

1-------+·-· ... -·-_ .......

52 60

1--------+···-·······"·····-1---------1

28

Who made the decision to clean

25

Who prepared the estimate

~ Opportunity

30 33

Claim rep Vendor 11

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Structure items are being replaced without first determlning if deaning would have been succe$sful.

CLEAN VS. REPLACE STRUCTURE ISSUES

• Scope Is prepared at initial Inspection with focus on replacement

- Writing scope geared toward claim conclusion without supplements

- There is a skill set issue in regards to cleaning structural items

• Insufficient direction and control of cleaning vendors by adjuster

• Referred vendors often performing both cleaning and repair/replacement activities, limiting incentive to properly clean

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Although cleaning is small relative to structure dollars paid, there is a significant opportunity associated with it.

CLEANING VS. REPLACEMENT - STRUCTURE Percent l' ·,' · ·:~ Cleaning

~-----------------------, I I

Percentage of structure dollars I Opportunity in . 1 pald for cleaning

1 structural cleaning I

Source: Team analysis oltlre CFR

I I I I I I

19.8

1 I 1....------------------------

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Vendors are an active part of our claim handling process and are impacting our areas of opportunity.

MANAGING VENDORS

• There is still widespread use of QVP

- lhere is insufficient control of the scope of loss

. Clean vs. replacement of both structure and contents items is being determined by the vendor

. We are paying for items not verified as damaged

- We are not taking overlap deductions

- Minimal use of alternative methods of repairs

- Tendency of contractor to lump-sum and single-bid items which are not being verified

• We are not utilizing competitive bids

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There are a number of issues which affect the amount of opportunity found in the evaluation and cleaning of structure.

EVALUATION ISSUES

• Lack of skill and understanding of ACCUPRO estimating

• We are continuing to pay FRC prior to repair

• Lack of estimating fundamentals

- We are faiRng to take overlap deductions, where applicable

- We are not verifying like, kind, and quality on estimates

• Final estimate is being prepared during initial inspection, as a result, we are paying to replace items that may have been cleaned

• Normal expenses are not being deducted from ALE payments

15

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A majority of the daims are being settled on an FRC basis.

\/

FRC VS. ACV SETTLEMENT OF STRUCTURE

Combo

Source: Team analysis ol fire CFR

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= = =

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There is a significant opportunity when a vendor estimates the structure.

WHO PREPARED STRUCTURE ESTIMATE?

Percent

Opportunities in structure estlmatlon

Vendor

Source; Team analysla offlre CFR

11.0

Structure adjuster

19.3

12.9

Vendor Ol:her

17

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There li! significant opportunity in the evaluation of both structure and contents.

STRUCTURE VS. CONTENTS OPPORTUNITIES IN EVALUATION Percent

Structure vs. contents losses

Evaluation opportunities In structure and contents

Contents losses 29

Structure losses

• The estimates excluclas cleaning Source: Team analysis of fire CFR

13.6"

Structure Contents

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There is opportunity related to the usage of ACCUPRO as well as the quality of such usage.

UTILIZATION OF ACCUPRO - STRUCTURE

Percent

100% = 155 claims

Non-ACCUPRO 36

ACCUPRO

Opportunity related to ACCUPRO use

11.4

13.9

ACCUPRO Non-ACCUPRO

Source: Team analysis of flre CFR

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Reinspections show that the greatest opportunities seem to lay in four categories.

AREAS OF OPPORTUNITY IDENTIFIED IN REINSPECTlONS

Percent

Areas of opportunity

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IJiF:Ii~0ii~]f ):;!{~~ct Obviously no damage 8

Like kind and quality 8

Measurement

Alternate repair method

Coverage

No visible damage

Depreciation

Repair vs. replace

Labor rates

5

5

4

3

2

2

1

20

z. p

= = .,,.. =

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As subrogation is extremely time-consuming to pursue, we are often looking for ways to take shortcuts.

SUBROGATION ISSUES

• Subro/recovery hampered by lack of up-front investigation

- Limited C&O investigation (adjusters making their best ca!I, uncritically accepting customers' first impression)

• Subro filters in files does not necessarily mean that subro is being addressed

003047-0l8•jsCH

21

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=

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Experts determine the C&O only 13 percent of the time.

SUBROGATION AND RECOVERY

Expert

Source: Team analy$is of fire CFR

003M7--0l&jsCH

22

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Many managers understand the need for measurement; however, it is not being consistently implemented nor regularly communicated to employees.

II

MANAGEMENT-RELATED ISSUES

• Measurement and management involvement

- Lack of awareness by employees on how they are measured

- Lack of feedback from management to claim reps

- Many managers understand the need for measurement, but it is not in place on a consistent basis

• There is a staffing/skill-set issue in the field

- Staffing/skill level drives file-handling toward fast-closure

- Independent adjusters are being used where staffing is an issues

23

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Opportunity in claims involving independent adjusters is higher than for nonindependent adjusters claims.

ll

INDEPENDENT ADJUSTERS Percent

Percentage of claims Involving Independent adjusters Structure and contents opportunity

Nonindependent adjusters

Independent adjusters

Source: Team analysis of lire CFR

91.6

15.5*

independent adjusters

12.5*

Nonindependent adjusters

000047-0lllojsCH

24

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= = =

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Ii

KEY LEARNINGS

• While some elements of fire gap process appear to be working, it still does not capture all the major pockets of the opportunity. In addition, the application of the process is not being consistently applied

• Significant opportunities exist, particularly in the following areas

c:)·

- Process-related Issues

. Contents

. Clean vs. replace

. Managing vendors

. Evaluation

• Subrogation

- Other management-related issues

Therefore, we propose the followlng next steps


- Preliminary design of structure and contents processes - Determining criteria and timing for fire test

25

= = =

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After reviewing 'the gathered data and visiting various sites, we have developed a preliminary design outline for handling structure losses.

PRELIMlNARV DESIGN WORK FOR STRUCTURE HANDLING - OVERVIEW

Who ara they?

1. Jab description

2. Skillset 3. Tools

When do they go?

1. Tier chart based on severity of loss

2. Dispatcher assigns file based on tier level

Customer service

1. Bulld customer rapport

2. Sclipts • Explain

coverages • Processes •ALE • PAs • Contents

speclaUsts • Advances

3. Give advance

What do they do?

lnvntlgatlon

1. Take Statement from Insured/ others

2. Determine need for C&Olother expert and contact

3. Direct securing of evidence/ establish thecry of llabOity

4. Title search and court records

5. Take35mm pictures

Eva1uallon

1. Test clean to determlne and prepare scope

2. Prepare diagrams 3. Write only verlflable

damages 4. Coordinate cleaning vendor

and meet with contractor andfor insured to agree on scope

5. Determine LKQ materials for replacement

6. Input scope Into Accupro • Small estimates to be

written on-site • Apply depreciation

7. 11 subbids are obtained • At least 2 bids • DetaUed and Itemized

8. If necessary, meet w[th contractor and/or Insured to get AP

9. Reinspect lesses • Before decorating begins

to verify scope of work/release FRC

• Supplements over a specific dollar amount

• When handling contents, aee pre Ii mi nary design work for contents handling

Ii

Recovery/ salvage

1. Pursue subrogation based on C&O

2. Obtain bids/disp068 of salvage per CSA guidelines

3. Transfer to subro coordinator

00304.7-0lll&jsCH

How are they measured?

1. Initial inspection requirements

2. Settlement time schedule

26

= = =

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We have also developed a preliminary design outline for handling content losses.

PRELIMINARY DESIGN WORK FOR CONTENTS - OVERVIEW

Who are they?

1. Job description

2. SkiU sel 3. Tools

When do they go?

1. Tierchart based on severity of loss

:2. Dispatcher assigns file based on tier level

Customer service

1. BuDd customer rapport/script

2. Script • Explain

coverage •Advances

What do they do?

Investigation

1. Video 2. Structure

expert will direct investigation

Evaluation

1. Testclean, separate items 2. List cleanable items 3. Coordinate vendors 4. Determine pack out of Items 5. Prepare scope tor cleanable

items S. Prepare nonsalvagable

restorable lnventOl)I list 7. Research competitive

pricing/LKQ 8. Apply appropriate

depreciation 9. Settle ACV with insured 1 o. Handle FRC as receipts are

submitted per policy guldellnes

Recovery/ salvage

1:: Pursue subrogation based on C&O

2. Obtain bids/dispose otsalvage per CSA guidelines

3. Transfer to subro coordinator

003()4.7-0IS.jsCH

How are they measured?

1. Initial Inspection requirements

2. Settlement time schedule

27

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= = =

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We have developed criteria for the selection of future fire test sites.

CRITERIA FOR FIRE TEST SITE SELECTION

• Fire is a significant issue for the CSA

• The CSA has an important amount of the countrywide losses

• The CSA has staffing adequate to participate in the test

• Prefer 2 MCOs that handle property within a reasonable travel distance of each other. Other options would include choosing 2 CSAs and having structured cross-team debriefs

• The CSA has an average or below-average fire severity performance

28

= = =

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= = -=

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,,

CONFIDENTIAL

Preliminary Closed-File Review Findings


Team debrief

October 11, 1996

This report is solely for the use of client personnel. No part of II may be circulated, quoted, or reproduced for distribution outside the cllent organization Without prlo r written approval lrom McKinsey & Company.

Thls malarial was used by Mcl<insey & Company during an oral presentation; It Is not a complete record of the discussion.

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0

OVERVIEW OF FINDINGS

• After 2 weeks in the field, initial CFR results suggest that there is a 20% opportunity !n wind/hail claims and 32% opportunity in theft claims; the overall opportunity is 26%. Reinspection suggests the opportunity is even greater

• Primary drivers of opportunity within perils appear to be in coverage analysis, evaluation investigation, and subrogation. Cross-perll issues like training and staffing also drive opportunity

• Going forward, the team will complete the preliminary file scan next week, and spend the following 2 weeks adapting the review form based on our learnings and preparing for the final CFR

003047-019$ /slpCl-1

1

H000000688

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ACTIVITIES TO DATE

Visited 1 specialty and 3 multiiine MCOs •Tucson, Arizona • Miami, Florida* •Troy, Michigan • Oklahoma City, Oklahoma

• Specially MCO

0030{7-019sjs/ sip CH

• Reviewed more than 200 files • Conducted 48 reinspections • Interviewed 24 field personnel -12 adjusters -4 UCMs -4PCMs -2MCMs -2 CPSs

• Rode along with adjusters Inspecting claims for 4 days

2

H000000689

=

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INITIAL CFR OPPORTUNITY FINDINGS BY PERIL*

Percent

For CAT vs. non·CAT

CAT Non-CAT Total

Wind/ hail 19 22 20

Theft NIA 32 32

Total 19 28

"

...... g • Includes 93 mes reviewed between Oct 6-9 l.

00300'-019sjs/slpCH

PREl/MINARY

For Allstate vs. Independent adjusters

Wind/ hall

Theft

Total

Allstate

10

33

32

Independents Total

21 20

27 32

22

3

H000000690

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INITIAL REINSPECTION OPPORTUNITY FINDINGS FOR WIND/HAIL CLAIMS*

Percent

Allstate Independents Total

CAT NIA 34 34

Non-CAT 25 72 59

Total 25 61

•.I

• Includes reinspeclions completed September 30 through October 9

PRELIMINARY

4

H000000691

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PR\MARY OPPORTUNITY DRIVERS

• Opportunity in wind/hail claims appears to be driven by insufficient coverage analysis, Improper scoping of damages, and poor identification of subrogation opportunities. These problems are magnified when independents are used

• The principle drivers of opportunity In theft claims appear to be inadequate investigation of loss facts and improper evaluation. Furthermore, contents specialists who lack proper theft handling skills are frequently assigned to handle theft claims

• Across perils, there appears to be opportunity to improve training, staffing levels, management involvement in the claims process, and CAT management

OQ3(147-0l9sj.s/ slpCH

5

H000000692

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COVERAGE ANALYSIS - WIND/HAIL

Primary issues

• Old damage not Identified

• Losses covered that were not sud<k:!n and accidental

• Deterioration identified as wind/hail loss

• Cause of loss covered

• Multiple losses not recognized

I!

003047.019sjs/ slpCH

Examples

• Hail damage, which is months oid, reported as new damage; we replaced entire roof

• Although drywall has various multicolored water rings from repeated leaks, loss was covered

• Roof repair oovered despite evidence of wet/dry rot, deterioration, and vegetation growing on roof

• Insured reported hail caused damage to roof; investigation revealed worn roof but no haii damage; roof replaced by Allstate

• Hail damage to root paid for twice

• Hail damage from multiple occurrences covered as single loss

6

H000000693

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SCOP1NG OF DAMAGES - WIND/HAIL

Primary Issues

• Deductibles given away

• Improper or no measurement of damaged area

• Damaged structure replaced instead of repaired

• Improper pricing

• Depreciation not properly applied

003C47-0l9sjs/&lpCH

Examples

• Homeowner given $250 for replacing +5 shingles; deductible was $250

• Adjuster recorded in diary that he wa;ved the deductible because the insured agreed to make repairs

• Size of wire screen enclosure reported to be 230 sq. ft larger than it actually Is

• Inspected loss, but accepted estimate of contractor although estimate was clearly wrong

• Canopy frame could have been repaired, but whole frame was replaced

• Used $10 per sq. ft. price for aluminum overhang; local price actually $3 per sq. ft.

• 7-yeat-old roof onty depreciated 10%

7

H000000694

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SUBROGATION -WIND/HAIL

Primary Issue

• Subrogation discounted without proper investigation

1.)

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Examples

• Diary entry shows subrogation was discounted before adjuster spoke with insured

• Canopy frame blown down, but there was no investigation of cause (e.g., date of installation, improper manufacture)

Quote(s)

•"I sometimes don't have time to follow up on subro, so I just write in the diary that I looked for it but there wasn't any (subro) potential."

-Claim rep

Comment(a)

• Almost no discussion of subro with customer docu~nted In files reviewed

8

H000000695

= en en

INDEPENDENTS - WINDMAIL

1)

• Opportunity in wind/hail losses inspected by independents is significantly higher* than in losses inspected by Allstate personnel; nevertheless, opportunity drivers appear to be the same as in files which Allstate inspected

• Broad use of Independents in most offices

- Inspect aU wind/hail claims in 2 out of 4 offices visited

- Frequent use of independents on CAT and non-CAT losses in 3rd office

- Independent usage limited to CATs in 4th office

• Limited or no management of independents' performance

- "We give up on independents too easily. We try them for 3 months, say they aren't any good, and throw them out. We don't do that to our own people."

-PCS - "We doni have time to manage our own people. When would we find time

to manage independents who won't be here very long?"

-UCM

14 L( 010 Preliminary CFR results show 210% higher opportunity; reinspection showed a}'t"lo higher opportunity

003047-019sjs/ slpCH

PRELIMINARY

9

H000000696

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INVESTIGATION OF LOSS FACTS -THEFT

Primary issues

• Suspicious loss facts not investigated

• Proof of ownership not requested or investigated

• No background on insured gathered (e.g., date of birth, place of employment)

• Fraud indicators not recognized

• Assignment of contents specialists 10 handle theft claims

0030l7-019sjs/slpCH

Examples

• $8,000 paid for items that were damaged or stolen during a move, but loss facts were not verified

• $1,000 of insured's weight equipment stolen from common area of apartment complex; no validation of loss facts

• Single female who lives alone reported that 3-4 men's s~its were stolen from her house; proof of ownership was not requested

• Accepte~ inventory sheet of insured without verifying ownership

Quote(s)

• "Even if they don't have proof of ownership on large items Ilka 42" televisions, we still have to pay the claim unless we can send it to SIU.•

-Claim rep

Comm~:mts

• Police reports confirming loss facts were not included in any of the files examined

• Insured background information not documented in any of the files reviewed

10

H000000697

= = =

EVALUATION -THEFT

Primary issues

• Improper pricing

• Depreciation not properly applied

• Lump-sum estimates of personal items accepted

•Items miscoded

• Reluctance to replace

003047-019sjs/slp0i

Examples

• Did not check prices on insured's hwentory list

• Accepted customer's price of $400 for 5-year-old microwave; did not apply depreciation

•Paid $800 for miscellaneous tools without itemization and description from insured

• $1,700 of jewelry coded to miscellaneous; internal limit on jewelry was $1,000

Quote(s)

• "Because insureds can't see and feel items [before purchase from replacement vendors] they don't want them replaced."

-Claim rep

Comments IJ

• Interviews suggest claims are unfamiliar with most replacement resources (e.g., Waxman carries tools)

11

H000000698

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EMERGING PROCESS IMPROVEMENT HYPOTHESES

Contact

Coverage

Evaluation

Wind/hail

• Require more detailed description of damages from insured (e.g., measurements)

• Require use of coverage checklist

•Teach claim reps impact of deductible giveaways

• Require photographs and measurement of inspected damages

• Encourage claim reps to offer appearance allowances and/or repairs before replacements

003047-019sjs/slp0i

PRELIMINARY

Theft

•Take recorded statements from insured at beginning of investigation

•Require use of coverage checklist • Enforce proof of ownership clause on

large items (e.g., televisions, computers)

• Teach claim reps how to "sell" replacement vendors to insureds

..

Documentation • Provide claim reps with structured diary • Provide claim reps with structured diary

!)

13

H000000699

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003047-0l~s/slpCH

HYPOTHESES FOR CAPTURING CROSS-PERIL OPPORTUNITIES PRELIMINARY

Opportunity area Hypotheses Rationale

Training • Build clearly defined training modules • No standard process for handling wind/hail designed to capture wind/hail and and theft claims theft opportunity •Claim representatives' requests to attend

• Increase access to training programs training turned down because of and resources insufficient space or overburdened MCO

• Build follow-up training programs staff •Long-time employees frequently unclear .

about basic skills (e.g., ACCUPRO, theft z investigation) = ...... Staffing • Create staffing model which facilitates • MCOs unable to staff windJhail claims with <....:> staffing of Allstate personnel on Allstate personnel = = wind/hail claims • Residence-based claim representatives = ""' • Base claim representatives from p_, appear more efficient ...... residences • Theft specialists currently processing too ""' = • Specialize adjusters around many other types of files 10 develop p_,

""-' ""' processes expertise = <....:> Management • Free-up management time to ride • Management involved in only 1 file

involvement along w;th and coach claim reviewed

:::s representatives, and conduct p_, reinspections and file reviews en

"""" .. CAT managel'Tj~nt* •Treat CAT claims the same as • CAT claims treated differently than LC>

= non-CAT daims to the extent nofi\.CAT claims en possible - Emphasis on closing files too quickly en

ci • Ensure Pilot adjusters receive the -Less documentation

same management attention as is - Little management of pilot adjusters ~ recommended for Allstate personnel <-"

1= on non·CAT claims • Primarily reviewed files closed prlort to imp1ementsllon of new CAT processes 12

I

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H000000701

Measure Current tracking Future Method

Water Peril Severity ** C122- one or multiple OIS;including all water perils cwa&cwp look at peril definition too

Mitigation; use, success, cost manual logs HOS- screen inputs

** #of losses inspected in manual logs, C527 mech disp mech,disp by peril process

Accupro on site Ride alongs, ? File reviews Accupro internal clock stamp

Subro submissions ** manual logs HOS, list 56

Reinspection results C3259 Mech disp enhancement

Process Compliance- I IS file reviews HOS screen review for UCM

Process Compliance- 0 IS file reviews Accupro report on form use

Customer Sat-cwa ICSS ICSS- by peril

Customer Sat-cwp phone contact via UCM ICSS- by peril

Same day contact- I I S ** file reviews HOS - mech diary

Contact 0 IS file reviews HOS - mech diary

Tier level file reviews HOS

H000000702

October 11, 1996 ~o Debrief .s:- Br-< I A-,J D \ IT"\...E

1. Coverage Analysis

2. Fire Gap States

3. Allocated Expense

'

H000000703

CCPR PROPERTY COVERAGE ANALYSIS

OWNERS

• TOTAL PERILS: PAID LOSSES BREAKOUT 67% DWELLING AND 28% CONTENTS • 90% OF EXPENSE IS DWELLING AND CONCENTRATED IN WATER, WIND, & FIRE • 2% OF PAID LOSS IS FOR ADDITIONAL LIVING EXPENSE • FIRE ACCOUNTS FOR 32% OF PAID LOSSES WITH 64% OF THIS IN DWELLING • WATER IS SECOND WITH 28% OF PAID LOSSES AND 90% IN DWELLING

RENTERS/CONDO

~ TOTAL PERILS: PAID LOSSES BREAKOUT 25% DWELLING AND 71°/o CONTENTS • ADDITIONAL LIVING EXPENSE IS 3°/o OF PAID LOSSES • 40% OF PAID LOSS IS IN THEFT PERIL UNDER CONTENTS COVERAGE • WATER IS SECOND WITH 31 % OF PAID LOSSES OF WHICH 67% IS DWELLING

MOBILEHOME

• TOTAL PERILS: PAID LOSSES BREAKOUT 72% DWELLING AND 26°/o CONTENTS • WATER AND FIRE COMBINED ACCOUNT FOR 64% OF PAID LOSSES • WINDSTORM REPRESENTS 16% OF PAID

H000000704

CCPR PROPERTY COVERAGE ANALYSIS • AUGUST YTD 1996

%TO CLOSED AVG LINE GROUP PERIL GROUP COVERAGE PAIO LOSS *DIST.• EXPENSE PAID CWA CWP CLOSURES *DIST.* .9Q§! ~

OWNERS OTHER EC AA 18,795,268 73% 412,382 2.19% 11905 4506 16411 66% 1. 170 25 OWNERS OTHER EC BB 2,072,461 8% 23,705 1.14% 2400 880 3280 13% 639 7 OWNERS OTHER EC cc 4,360,357 17% 10,923 0.26% 3346 1224 4570 18% 957 OWNERS OTHER EC DD 497,662 2% 695 0.14% 506 149 656 3% 761

26,726,647 447,705 1.74% 18, 167 6,759 24,916 1,050 18

OWNERS OTHER AEC AA 8,836,387 89% 242,957 2.76% 6368 2928 9296 87% 977 26 OWNERS OTHER AEC BB 447,390 5% 4,642 1.04% 310 170 480 4% 942 10 OWNERS OTHER AEC cc 583,042 6% 2,720 0.47% 510 340 860 8% 689 3 OWNERS OTHER AEC DD 43,886 0% 61 0.14% 79 20 99 1% 444 1

9,910,706 250,380 2.53% 7,267 3,468 10,725 947 23

OWNERS FIRE AA 118,574, 184 64% 2,201,223 1.86% 13492 1666 15067 48% 8,021 146 OWNERS FIRE BB 5, 102,326 3% 84,668 1.66% 1294 266 1560 5% 3,346 55 OWNERS FIRE cc 63, 187,645 29% 159,613 0.30% 9373 2021 11394 36% 4,882 14 OWNERS FIRE DD 7,833,550 4% 11, 187 0.14% 2742 845 3587 11% 2.187 3

1 84,697 ,605 2.456.590 1.33% 26,901 4,687 31,588 5,925 78

OWNERS LIGHTNING AA 17, 133,636 57% 408, 173 2.38% 17227 4919 22146 49% 792 18 OWNERS LIGHTNING BB 561,707 2% 5,703 1.02% 785 286 1071 2% 530 5 OWNERS LIGHTNING cc 12,172.761 41% 67,510 0.65% 16809 6136 21944 48% 558 3 OWNERS LIGHTNING DD 107,791 0% 0 0.00% 109 31 140 0% 770 0

29,975,886 481,387 1.61% 33,930 11,371 46,301 672 11

OWNERS THEFT AA 6,879,222 8% 236, 184 3.43% 12259 4897 17156 21% 415 14 OWNERS THEFT BB 364,036 0% 411 0.11% 972 440 1412 2% 258 0 OWNERS THEFT cc 75,764,680 91% 569, 184 0.76% 53253 10696 63949 77% 1,194 9 OWNERS THEFT DD 17,142 0% 0 0.00% 35 13 48 0% 357 0

83,025,079 806,779 0.97% 66,519 16,046 82,565 1,015 10

OWNERS WATER AA 146,417,223 90% 4,574,776 3.12% 85062 31027 116089 82% 1,301 39 OWNERS WATER BB 607,140 0% 18,892 3.11% 476 491 967 1% 647 20 OWNERS WATER cc 15,146,853 9% 45,147 0.30% 14936 7861 22797 16% 666 2 OWNERS WATER DD 1,335,433 1% 175 0.01% 1586 448 2034 1% 657 0

163,505,649 4,638,989 2.84% 102,060 39,827 141,887 1, 185 33

OWNERS WINDSTORM AA 75,630,797 88% 2,655,309 3.61% 50920 17409 68329 80% 1,146 39 OWNERS WINDSTORM BB 8,006,763 9% 82,910 1.04% 9475 2132 11607 14% 697 7 OWNERS WINDSTORM cc 2, 197,048 3% 6,687 0.30% 3856 1768 6624 7% 392 OWNERS WINDSTORM DD 180,666 0% 0 0.00% 118 38 156 0% 1, 158 0

86,014,274 2,744,806 3.19% 84,369 21,347 86,716 1,038 32

OWNERS TOTAL AA 392,288,716 87% 10,731,004 2.74% 197,233 67,261 264,484 63% 1,524 41 OWNERS TOTAL BB 17, 160,822 3% 220,831 1.29% 15,712 4,665 20,367 5% 853 11 OWNERS TOTAL cc 1 63,411,276 28% 861,684 0.63% 101,083 30,045 131,128 31% 1,253 7 OWNERS TOTAL DD 10,016,030 2% 12,117 0.12% 5, 175 1,544 6,719 2% 1.493 2

582,854,844 11,825,636 2.03% 319,203 103,495 422,698 1 ,407 28

H000000705


%TO CLOSED AVG LINE GRQUP PERIL GROUP COVERAGE PAID LOSS !.Q!!L.!!. ~ ~ CWA ~ CLOSURES *OIST. 11 £Q.!!! ~

RENT/CONDO OTHER EC AA 301,311 31% 35,079 11.64% 257 131 388 37% 867 90 RENT/CONDO OTHER EC BB 0 0% 0 0 0 0 0% RENT/CONDO OTHER EC cc 600,974 62% 12,227 2.03% 382 208 590 57% 1,039 21 RENT/CONDO OTHER EC DD 67,153 7% 0 0.00% 50 14 64 6% 1,049 0

969.438 47,306 4.BB% 689 353 1,042 976 45

RENT/CONDO OTHER AEC AA 130,674 65% 3,099 2.37% 191 10B 299 76% 447 10 RENT/CONDO OTHER AEC BB 0 0% 0 0 0 0 0% RENT/CONDO OTHER AEC cc 6B,040 34% 454 0.67% 39 47 86 22% 796 RENT/CONDO OTHER AEC DD 882 0% 0 0.00% 3 3 6 2% 147 0

199,597 3,553 1.7B% 233 168 391 520 9

RENT/CONDO FIRE AA 932,649 11% 26,798 2.87% 520 139 659 24% 1 .456 41 RENT/CONDO FIRE BB 0 0% 0 0 0 0 0% RENT/CONDO FIRE cc 6,928,662 79% 106,845 1.53% 1232 276 1508 56% 4,665 70 RENT/CONDO FIRE DD 856,010 10% 9B3 0.11% 435 lOB 543 20% 1,578 2

8,717,211 133,626 1.53% 2,187 523 2,710 3,266 49

RENT/CONDO LIGHTNING AA 120,882 11% 2, 101 1.74% 179 49 228 9% 539 9 RENT/CONDO LIGHTNING BB 0 0% 0 0 0 0 0% RENT/CONDO LIGHTNING cc 1,011,208 89% 9,618 0.95% 1599 723 2322 91% 440 4 RENT/CONDO LIGHTNING DD 7,668 1% 0 0.00% 6 1 7 0% 1,095 0

1,139,757 11,719 1.03% 1,784 773 2,557 450 5

RENT/CONDO THEFT AA 126.417 1% 2,089 1.65% 265 130 395 3% 325 RENT/CONDO THEFT BB 0 0% 0 0 0 0 0% RENT/CONDO THEFT cc 16,230,035 99% 182,352 1.12% 12557 2614 15171 97% 1,082 12 RENT/CONDO• THEFT DD 1,443 0% 1,107 76.71% 5 2 7 0% 364 158

16,357,895 185,549 1.13% 12,827 2,746 15,573 1,062 12

RENT/CONDO WATER AA 8,457,117 67% 220,023 2.60% 6398 2499 8897 63% 975 25 RENT/CONDO WATER BB 0 0% 0 0 0 0 0% RENT/CONDO WATER cc 3,909,577 31% 35,296 0.90% 2798 1919 4717 34% 836 7 RENT/CONDO WATER DD 335,745 3% 179 0.05% 323 79 402 3% 836 0

12,702,439 255.498 2.01% 9,519 4,497 14,016 925 18

RENT/CONDO WINDSTORM AA 202,549 55% 8,513 4.20% 226 110 336 57% 628 25 RENT/CONDO WINDSTORM BB 0 0% 0 0 0 0 0% RENT/CONDO WINDSTORM cc 160,794 44% 2,325 1.46% 145 96 241 41% 677 10 RENT/CONDO WINDSTORM DD 4,863 1% 0 0.00% 7 4 11 2% 442 0

368,207 10,838 2.94% 378 210 588 645 18

RENT/CONDO TOTAL AA 10,271.499 25% 297.701 2.90% 8,036 3,166 11 ,202 30% 944 27 RENT/CONDO TOTAL BB 0 0% 0 0 0 0 0% RENT/CONDO TOTAL cc 28,909,280 71% 348,118 1.20% 18,752 5,883 24,635 67% 1, 188 14 RENT/CONDO TOTAL DD 1 ,273,765 3% 2,269 0.18% 829 211 1,040 3% 1,227 2

40.454,544 648,0B9 1.60% 27,617 9,260 36,877 1'115 18

H000000706


%TO CLOSED AVG LINE GROUP PERIL GROUP COVERAGE PAID LOSS *DIST. 11 EXPENSE PAID CWA ~ CLOSURES ~ 2.Q.!! ~

MOBILEHOME OTHER EC AA 433,414 74% 11,414 2.63% 3B6 190 576 73% 772 20 MOBILEHOME OTHER EC BB 142,389 24% 100 0.07% 131 64 195 25% 731 MOBILEHOME OTHER EC cc 0 0% 0 0 0 0 0% MOBILEHOME OTHER EC DD 6,994 1% 0 0.00% 13 5 18 2% 333 0

581,798 11,514 1.98% 530 259 789 752 15

M081LEHOME OTHER AEC AA 402, 173 72% 5,356 1.33% 67 20 87 55% 4,684 62 MOBILEHOME OTHER AEC BB 143,034 26% 0 0.00% 44 12 56 35% 2,554 0 MOBILEHOME OTHER AEC cc 0 0% 0 0 0 0 0% MOBILEHOME OTHER AEC DD 13,587 2% 0 0.00% 11 4 15 9% 906 0

558,794 5,356 0.96% 122 36 158 3,571 34

MOBILEHOME FIRE AA 5,251,444 61% 192,078 3.66% 730 116 846 46% 6,442 227 MOBILEHOME FIRE BB 3,093,296 36% 7,342 0.24% 607 126 733 40% 4,230 10 MOBILEHOME FIRE cc 0 0% 0 0 0 0 0% MOBILEHOME FIRE DD 303,931 4% 96 0.03% 207 66 273 15% 1,114 0

8,648,670 199,514 2.31% 1,544 307 1,851 4,780 108

MOBILEHOME LIGHTNING AA 884,980 50% 18,961 2.14% 1312 368 1680 45% 538 11 MOBILEHOME LIGHTNING BB 867,631 49% 3,667 0.42% 1478 650 2028 54% 430 2 MOBILEHOME LIGHTNING cc 0 0% 0 0 0 0 0% MOBILEHOME LIGHTNING DD 1,810 0% 0 0.00% 10 7 17 0% 106 0

1,754,421 22,628 1.29% 2,800 925 3,725 477 6

MOBILEHOME THEFT AA 314,683 11% 628 0.20% 698 334 1032 26% 305 1 MOBILEHOME THEFT 88 2,571,391 89% 21,812 0.85% 2449 604 2953 74% 878 7 MOBILEHOME THEFT cc 0 0% 0 0 0 0 0% M081LEHOME, THEFT DD 335 0% 0 0.00% 2 1 3 0% 112 0

2,886,309 22,440 0.78% 3,149 839 3,988 729 6

MOBILEHOME WATER AA 8,802,239 96% 264,437 3.00% 6603 1822 8426 87% 1,076 31 MOBILEHOME WATER BB 342,552 4% 1,343 0.39% 676 371 1047 11% 328 MOBILEHOME WATER cc 0 0% 0 0 0 0 0% MOBILEHOME WATER DD 56,564 1% 0 0.00% 116 49 165 2% 343 0

9,201,355 265,780 2.89% 7,395 2,242 9,637 982 28

MOBILEHOME WINDSTORM AA 4, 173,800 94% 116,392 2.79% 3468 870 4338 88% 989 27 MOBILEHOME WINDSTORM BB 249,560 6% 1,001 0.40% 403 133 536 11% 467 2 MOBILEHOME WINDSTORM cc 0 0% 0 0 0 0 0% MOBILEHOME WINDSTORM DD 18,089 0% 0 0.00% 22 11 33 1% 548 0

4,441,449 117,393 2.64% 3,893 1,014 4,907 929 24

MOBILEHOME TOTAL AA 20,262,633 72% 609,267 3.01% 13,264 3,719 16,983 68% 1,229 36 MOBILEHOME TOTAL BB 7,409,852 26% 35,265 0.48% 5,788 1,760 7,548 30% 986 5 MOBILEHOME TOTAL cc 0 0% 0 0 0 0 0% MOBILEHOME TOTAL DD 400,310 1% 95 0.02% 381 143 524 2% 764 0

28,072,796 644,626 2.30% 19,433 5,622 25,055 1,146 26

H000000707

FIRE GAP ST ATES

FIRE Aug-96 96/95 95/94 94/93 Aug-96

SEVERITY %VAR %VAR %VAR CWA's

CONNECTICUT 13,522 18 -6 19 507 FLORIDA (ATLANTICI 9,258 1 8 16 831 FLORIDA (GULF) 9,702 3 26 -5 977 MAINE 8,377 28 32 -29 151 MARYLAND 9,001 -19 19 -4 1,060 NEW HAMPSHIRE 12, 108 66 -26 -12 128 NEW Jl;RSEY 16,272 10 -3 25 803 NEW YORK (LONG ISLAND) 16,545 15 15 -2 789 RHODE ISLAND 11,347 9 -13 73 123 VERMONT 12, 166 27 46 -54 75 VIRGINIA 7,149 -18 24 6 1,341

TOTAL FIRE GAP 10,965 0 11 5 6,785 TOTAL STATES 11,032 6 2 12 30,771

GAP PT. VAR -6 9 -7

H000000708

TOTAL PROPERTY EXCLUDING CATS

AUGUST YTP 1995

ALLOCATED EXPENSE

CWAs CWPs TOT AL CLOSURES

EXPENSE PER CLOSURE

AUGUST YTP 1996

ALLOCATED EXPENSE

CWAs CWPs TOT AL CLOSURES

EXPENSE PER CLOSURE

I% VAR PER CLOSURE

ALLOCATED EXPENSE PER CLOSURE ANALYSIS

fLL ~ ~ .ca ~

$10,331,924 $2,659,693 $6,343,943 $22,525,536 $3,788,626

75,282 84,143 142,463 23,596 100,574 17,052 30,469 64,131 19,814 25, 187 92,334 114,612 206,594 43,410 125,761

$112 $23 $31 $519 $30

fLL ~ ~ .ca ~

$11,825,605 $4,636,845 $11,230,549 $25,211, 182 $4,556,888

68,390 97,185 159,719 21,398 89,468 15,832 34,253 70,506 19,344 23,574 84,222 131,438 230,225 40,742 113,042

$140 $35 $49 $619 $40

25.48% 52.02% 58.86% 19.25% 33.81%

..

ALL PERILS

$49,632,914

479,641 170,448 650,089

$76

ALL PERILS

$62,295,927

487,159 177,232 664,391

$94

22.81%

SUPPLEMENT

H000000709

% ALLOCATED EXPENSE TO GROSS PAID

Aug-96 Aug-95 Aug-96 %TO %TO

AUOCATED GROSS GROSS 96/95 ~ fAll2 fAll2 CHG.

•• TEXAS (HOUSTON) 3,213,155 9.66% 7.11% 2.56% CALIFORNIA (SO CALI 2.451,243 8.69% 5.80% 2.88% CALIFORNIA (SACRAMENTO) 2,312, 189 8.60% 6.88% 1.71% HAWAII 122,111 8.64% 4.75% 3.78% NEW YORK (NEW YORK LIBERTY) 2,921,680 8.00% 6.38% 2.63% IOWA 99,233 6.97% 2.96% 4.01% TENNESSEE 1, 169,696 6.27% 5.35% 0.92% NEW HAMPSHIRE 226,783 5.96% 4.46% 1.61% LOUISIANA 1.416,079 6.88% 4.64% 1.23% MONTANA 106,660 5.64% 2.39% 3.25% FLORIDA (ATLANTIC) 1,633,632 5.61% 3.81% 1.80% NEW YORK (LONG ISLAND METRO) 2,010,755 6.59% 4.47% 1.12% RHODE ISLAND 202,027 5.33% 5.60% -0.27% NEW JERSEY 1,716.481 4.99% 5.14% -0.16% MINNESOTA 353,300 4.91% 3.67% 1.24% FLORIDA (GULF) 1.476,674 4.89% 3.74% 1.15% MISSOURI 295,018 4.74% 2.59% 2.16% WYOMING 80,319 4.69% 7.67% -2.88% PENNSYLVANIA 2, 152,391 4.52% 2.98% 1.64% SOUTH DAKOTA 13,104 4.38% 1.58% 2.80% KANSAS 166,634 4.32% 2.87% 1.45% NEBRASKA 89,880 4.18% 5.22% -1.04% WISCONSIN 235.440 3.96% 3.62% 0.44% NEW MEXICO 251.410 3.86% 3.20% 0.66% OREGON 379,833 3.81% 2.71% 1.10% WEST VIRGINIA 1B9,008 3.79% 2.67% 1.22% WASHINGTON 652,292 3.70% 2.88% 0.82% MAINE 91,912 3.63% 3.00% 0.63% KENTUCKY 277,658 3.61% 3.92% -0.31 % TEXAS (DALLAS( 1,388,079 3.61% 1.99% 1.62% NEVADA 285,715 3.51% 2.53% 0.98% NEW YORK (ROCHESTER) 849.474 3.46% 2.47% 0.99% ALASKA 197,915 3.39% 5.84% -2.46% MISSISSIPPI 182,616 3.25% 2.57% 0.67% TOTAL IUINOIS 1,651.413 3.23% 2.91% 0.32% ARIZONA 450,230 3.21% 2.30% 0.91% OHIO B88,566 3.15% 2.93% 0.22% UTAH 203,733 3.04% 2.67% 0.37% CONNECTICUT 623,610 2.92% 2.81% 0.12% MICHIGAN 1,214,317 2.87% 3.17% -0.30% OKLAHOMA 253,109 2.86% 5.43% -2.57% COLORADO 287,494 2.66% 3.22% -0.57% ARKANSAS 144,065 2.63% 1.02% 1.61% IOAHO 60,278 2.57% 5.13% -2.56% SOUTH CAROLINA 359,917 2.53% 2.11% 0.42% GEORGIA 637,045 2.42% 2.29% 0.13% VERMONT 60,731 2.31% 3.01% -0.70% INOIANA 374,027 2.27% 1.74% 0.53% DISTRICT OF COLUMBIA 29,625 2.10% 1.13% 0.97% NORTH CAROLINA 451,934 1.94% 1.16% 0.78% ALABAMA 295,872 1.93% 1.97% -0.04% DELAWARE 26,816 1.92% 3.34% -1.42% NORTH DAKOTA 16.482 1.63% 0.81% 0.82% MARYLAND 449.487 1.56% 1.02% 0.53% VIRGINIA 202,590 0.80% 1.04% -0.23%

TOT Al US STA TES 4.88% 4.13% 0.76%

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KEY ISSUES TO DISCUSS IN LEADERSHIP TEAM MEETING

1. Agree on near-term team structure and activities

- Need for additional CFR resources or not

- Fire vs. design teams

2. Agree on key decision points

- Timing and basis for decision on peri!/cross-peril focus

- Timing and basis for decision on Phase 1 test sites

3. Address personnel issue

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METHODOLOGY FOR CALCULATING CFR STAFFING NEEDS

Files required

Reviewing capacity

Team of 4: 2-1/2 - CFR

250-300 per peril subgroup

Total Files reviewed during scan Flies required from CFR

Time 1 - Reinspections Allocation 112 - Interviews

Files per person per day: 5

Total files per team per week ~ 2-1/2 FTE x 4 fuU days x 5 files/FTE day = ~

Additional files per person added r:;-;;:;.::i $14 FTE x 4 full days x 5 files/FTE-day = ~

=750-900 =-300 = 450-600

[

Wind/hail {non-CAT) Theft Wind/hail (CAT)

Number of weeks requlred

With design team only: ..-------450-600/100 files = j 4-1/2-6 weeks

With fun core team: 450-600/100 + 60 files = 13-4 weeks

With design team plus: 450-600/100+30 files = 13-1/2-41/2 weeks l (part-time fire or 2 · · additional resources)

2

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OPTIONS FOR TEAM STRUCTURE/FOCUS GOING FORWARD - SHORT/MEDIUM TERM

• Keep fire and design teams completely separate

- Allow fire to focus on design and testing

- Recruit additional resources to support design CFR

• Role fire into design team

- Use entire team to complete design CFR

- Begin design and test phase together

• Incorporate fire into overall team with split focus

- Allow fire to begin design phase

- Use fire team to "fill out• CFR need on part-time basis

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OPTION 1

Design team • Complete scan • Analyze scan data and

validate focus/adapt as appropriate

• Run full CFR • Begin debrief/data analysis

Fire team

..

10/4 10121 10/28 11/4 11/11 11/181112511/30 1212 1219

•Continue data analysis --• Internally design first cut of -------

process • Prep for test sites • Phase 1 fire test sites

- Refine process detail on-site

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OPTION 2

Complete design scan

Continue analysis on fire data

Analyze design scan data and validate focus/prep for full CFR

Run full CFR

Debrief and analyze CFR data

Internally design first cut of processes

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OPTION 3

Design team •Complete scan • Debrief/analyze scan and

validate focus • RunfuU CFR • Debrief analyze CFR

data/build hypotheses on processes

Fire team

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• Continue data analysis on ~--- • fire

• Internally design first cut of process

• Assist design team CFR • Continue design and prep

for test sites

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OPTION TRADE-OFFS

Option 1 - fully separate teams

Option 2 -1 fully integrated team

Option 3 - partially Integrated teams

Pros

• Maintains fire's focus and momentum

• Allows more speedy completion of design CFR with core team only

• Aligns timing of design efforts

• Allows fire to maintain some critical momentum

• Provides design team enough support to complete CFR without additional resources

• Keeps thinking and hypotheses of 2 teams linked (especially on cross-perll Issues)

OOJ047-02Ccs<ICH

Cons • Creates significant time lags

between design efforts • Potentially requires additional

resources tor design CFR

• Kills momentum of fire team

• Forces fire team to have split focus

• Slows fire design process

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H000000717

LONGER· TERM PROJECT STRATEGY

Description

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Test processes for individual perils In separate locations to allow focus and isolated attention

Test processes as a combined, integrated solution

Include appropriate "support" redesign (e.g., staffing and cross-staffing, management alignment, local vs. regional spans of control, etc.}

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Phased rollout

Roll out in groupings small enough to allow for sufficient focus and time to ensure success

Make effort to specifically prep rollout sites to ensure they are able to take full advantage of rollout

8

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PRELIMINARY FINDINGS REGARDING AREAS OF OPPORTUNITY

Findings

• There is still significant opportunity both in process and nonprocess issues in fire

• The opportunities in both wind/hail and theft are consistent with or even greater than indicated by initial hit analysis

• Reinspection of wind/hail losses indicate even greater levels of opportunity

• Contents and independents are 2 quite important cross-peril issues

• The roll-back of the QVP program has made QVP less of an issue though still important in spots (e.g., fire cleaning)

• In affected MCOs, CATs have a substantial detrimental effect on the entire property claims area

• Staffing in the field is extremely stretched in much of the fi~ld

Implications

• The fire peril will require a relatively comprehensive design effort

• The perils of wind/hail and theft continue to display substantial opportunity

•The cross-peril issues targeted (contents, independents, QVP) are also proving out, though to somewhat differing degrees

• CATs, particularly smalVmedium CATs may need to be more actively considered in the upfront solutions

•The staffing situation in the field will require particular attention not only in rollout, but in testing as well

9

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POTENTIAL PROCESS DESIGN TEAM ALIGNMENT

Group 1

Fire Content QVP

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Wind/ hall

Group 1

Independent

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KEY DECISION POINTS

Issue

Which perils/cross-peril issues will be In-scope

Leadership of peril/cross-peril design efforts

Structured and timing of first test cycles

Selection of test sites

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Timing

} End October (after design team scan debrief)

} End November

I)

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NEXT STEPS

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• Agree on short-term team approach

• Set dates and times for next full team reviews and leadership meetings

• Agree on disposition of personnel issue

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HOMEOWNER 10/30/96

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HOMEOWNER 10/30/96

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CONFIDENTIAL

Cross-Peril Opportunities


Team debrief

October 30, 1996

This report is solely for the use of client personnel. No part of it may be circulate<l, quoted, or reproduced for distribution outside the client organization wilhoul prior written approvar from Mc Kinsey & Company.

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KEV FINDINGS/BELIEFS

~Ly/ Approximately 93% or $478 million of opportunity is captured in evaluation, coverage, and subrogation

- On the more macro level, issues within these process steps are for the most part common across perlls

- Opportunity ls driven by improper or nonappllcation of basic adjusUng techniques

• The largest cross-peril issue is contents/replacement which drives $76 million of opportunity. Independents account for $27 million of opportunity in non-CAT. QVPs, which represent $14 million of opportunity, are used almost exclusively in fire losses

• The underlying causes within process steps and for cross-peril issues fall into 3 main areas

- Inadequate staffing

- Lack of management involvement in the claims process

- Lack of training/basic adjusting skins

• Although there is more fact finding to be done, going forward it would appear that we need to focus on resolving issue-specific as opposed to peril-specific opportunities. Furthermore, we need to take a holistic approach to potential solutions. As a result, we will address a number of additional items during field visits

1

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The largest opportunitie.5 across perils exist in evaluation of structure and contents, coverage, and subrogation.

OVERALL OPPORTUNITY BY PROCESS STEP

Overall $millions Percent

Cat $millions Percent

Fire $mimons Percent

Theft $ m~lions Percent)

Wind/hail (noncat) $ mHlions Percent

Mitigation

5.8 0.3

0 0

5.1 1.0

0 0

0.7 0.5

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~-:

Fraud

8.1 0.5

0 0

0 0

7.7 4.1

0.4 0.3

Evali.hrtlon {s1ruChire. and -- . . . c-oiitentsL

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. 34i.2-: i: ,-.. 19.a·:'. !..' .. : ....

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. ; ., . :235~3 . . . "

25~_ . . :".?: . .

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Evaluation {cleaning and ALE)

14.4 0.8

0 0

14.4 2.B

0 0

0 0

3.1 0.2

0 0

3.1 0.6

0 0

0 0

~ Source; CFR; reinspecrions; OIS; C074 audil; wo1king team anafysis <...>

=

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Salvage

3.1 0.2

0 0

3.1 0.6

0 0

0 0

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517.1 29.5

301.6 33.2

134.8 26.2

4f.9 22.6

38.8 28.5

2

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Coverage not investigated is a common issue across theft, wind/hail, and CA Ts. It is also the largest driver of coverage opportunity. Other coverage issues are similar across wind/hail and CA Ts.

COVERAGE

Issue Fire Theft Wind/hail

Coverage not investigated t/ ti' Other insurance V' Improper policy interpretation fl' Multiple losses fl'

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Cats

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Incorrect depreciation/improper l.l.'le of FRC versus ACV was a common issue across all perils. Improper estimate calculation was common in perils where structural losses occur frequently.

EVALUATION - STRUCTURE

Issue Sublssue Fire Theft Wind/hail

Scoping Clean vs. replace ti' Alternative repair methods fl' Damages not related to loss

Maintenance-related damages

Lack of estimating Improper estimate calculations fundamentals (e.g., improper use of

ACCUPRO)

Incorrect depreciation/FRC vs. ACV

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Cats

4

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[n contents evaluation, incorrect depreciation/improper use of FRC versus ACV was again a common issue. Most other issues were shared across fire and theft where contents losses are frequent.

EVALUATION - CONTENTS

Issue

Inventory

Lack of estimating fundamentals

Subissue

Accept insured's inventory sheet without verification

Clean vs. repair

Accept insured's prices without verification

Little or no use of national replacement centers

Incorrect depreciation/FAG vs. ACV

Fire Theft Windlhail

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Cats

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Most of the issues related to subrogation were common across all perils. Subrogation was more likely to be pursued in fire where losses are often quite large.

SUBROGATION


Limited or no investigation t/ t/ t/ lack of identification t/ t/ ~ Poor handling by NAVP t/ Not pursued when recognized

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Cats

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KEY FINDINGS/BELIEFS

• Approximately 93% or $478 million of opportunity Is captured in evaluation, coverage, and subrogation

~. LV

- On the more macro level, issues within these process steps are for the most part common across perils

- Opportunity is driven by improper or nonapplication of basic adjusting techniques

The largest cross-perll issue is contents/replacement which drives $76 mllllon of opportunity. Independents account for $27 million of opportunity in non-CAT. QVPs, which represent $14 million of opportunity, are used almost exclusively in fire losses

• The underlying causes within process steps and for cross-peril Issues fall into 3 main areas



- Lack of training/basic adjusting skins

• Although there is more fact finding to be done, going forward it would appear that we need to focus on resolving issue-specific as opposed to peril-specific opportunities. Furthermore, we need to take a holistic approach to potential solutions. As a result, we will address a number of additional items during field visits

7

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Our findings matched our original hypotheses about contents/replacement and independents. We found less use of QVPs than we expected.

CROSS-PERIL HYPOTHESES

Issue Original hypotheses What we found

Contents/ • Segmentation at structure and • The insured routinely priced and submitted the replacement contents may be the most contents inventory programs effective handling method • Same adjusters handle both the structural and

• Replacement activity is below contents portion of losses. It appears that this needed levels method of handling does not provide the best

• Can impact severity positively severity control if used properly • Replacement activity is relatively low

• General lack of knowledge of available replacement resources

• The carpet replacement evaluation process appears to take too long

• Contents receiving secondary priority

Independents • Heavily used in field due to • Confirmed hypotheses inadequate staffing • Replaced QVPs in the adjusting force

• Major driver of cross-peril • Represent significant economic opportunity opportunity • Receive little or no ARstate supervision

• Frequently not managed • Heavily represented by Pilot adjusters

QVP ' • QVP negatively impacts • QVPs were not widely used in wind/hail and theft severity losses

• Role of QVP may not be • Were a driver of opportunity in fire, mostly in the clearly defined in the field evaluation of large structural losses

8

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Contents/replacement is the largest cross peril. Independents are also a significant issue. QVP usage appears to be limited to fire losses.

OPPORTUNITY FOR INDEPENDENTS AND OVPs

$ Millions; percent

100%=$76.3

Theft

Wind/hail

CAT

Fire

17

18

23

42

Contents/ replaqement

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26.6 ..

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38 i I

62

Independents

14.0

100

OVP '!

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Methodology

• Identified files with independent or QVP involvement

• Determined which process steps involve independents or QVPs

• Calculated opportunity in process steps for independents or QVPs

• Calculated percent opportunity

• Multiplied percent opportunity by total paid loss to get total opportunity

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• Approximately 93% or $478 million of opportunity is captured in evaluation, coverage, and subrogation


- Opportunity fs driven by improper or nonapplication of basic adjusting techniques


c>. The underlying causes within process steps and for cross-peril Issues fall into 3 main areas


- Lack of management Involvement in the claims process

- Lack of training/basic adjusting skills

• Although there is more fact finding to be done, going forward it would appear ttiat we need to focus on resolving issue-specific as opposed to peril-specific opportunities. Furthermore, we need to take a holistic approach to potential solutions. As a result, we will address a number of additional items during field visits

10

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Three areas were frequently identified as the primary drivers of opportunity.

UNDERLYING CAUSES OF OPPORTUNITY ACROSS PERILS

Area

Inadequate staffing

Lack of management involvement

Lack of skills/ training

Description

• Adjusters feel rushed to settle claims due to high work load; "short cuts" lead to errors

• Adjusters settle losses that they are inadequately trained to handle • independents, who lack appropriate customer service skills and receive litUe or no

Allstate supervision, are used to settle losses

• It appears that front-line managers are heavily involved in nonfront-line management activities

• Managers' time is heavily involved in complaint handling • Front-fine managers are often new to the position, and are still learning the job • There appears to be a lack of quality reinspections • Some managers lack technical background

• Manager unable to provide ongoing training - lack of time andlor ability • Poor reinspection activity leads to lack of identification of skill gaps • Lack of ma11agement ride-along activity to reinforce and train appropriate skills and

behaviors • There appears to be little continuing training • Inadequate technical training to support our needs • Lack of available training resources (e.g., CPS training systems)

Source: CFR; interviews; team observalions 11

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• Approximately 93% or $478 million of opportunity is captured in evaluation, coverage, and subrogation


- Opportunity is driven by improper or nonapplication of basic adjusting techniques


• The underlying causes within process steps and for cross-peril issues fall into 3 main areas


~ LV.


- Lack of lrainingfbasic adjusting skills

Although th~re is more factfinding to be done, going forward,it would appear that we need to focus on resolving issue-specific as opposed to perll-~pecific opportunities. Furthermore, we need to take a holistic approach to potential solutions. As a result, we will address a number of additional items during field visits

12

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Moving forward, the team needs to further understand a number of issues. That may impact the ultimate solution.

ISSUES TO ADDRESS MOVING FORWARD

Staffing • Current role definitions • Current use of QVP and independents, and their effectiveness

003047-0Xltpn/sbpCH

PRELIMINARY

• Volatility and seasonality of various perils, and their impact on claim processes • Effectiveness of inside and field claim reps • Impact of specialization/segmentation

Management • Current role of management • Management of Allstate staff vs. independents • Management issues across perils • Impact of specialization on management resources\ • Performance measurements

Skills/training • Strong vs. weak skiHs • Availability of training • Methods of training administration

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13

H000000739

CONFIDENTIAL

Results from Design Team CFR Scan


October 30, 1996

Team debrief

Thls report ls sole! y for the use o( client personnel. No part o( it may be drculated, quoted, oc reproduced for distribution outside the cUent organization without prior written approval from McKlnsey & Company.

003047·l123~</tpnCH

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The design team visited 6 MCOs over a 3-week period, conducting reinspections, interviews, and ride-alongs.

ACTIVITIES TO DATE

Equal number of files selected from quartiles based on loss size • Theft quartiles

-$100-1,000 -1,001-2,500 - 2,500-5,000 -5,001+

• Wind/hail quartiles -$100-750 -751-1,500 -1,501-2,500 -2,501+

Vis[ted 6 MCOs between September 30 and October 17, 1996 • 3multmne • 3 specialty

• Reviewed 323 files -113 non-CAT wind/hail -106 theft - 104 CAT wind/han

• Conducted 95 reinspectlons 1

• Interviewed 36 field personnel

• Rode along with adjusters inspecting claims for 4 days

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KEY FINDINGS

The CFR Scan uncovered significant opportunity in both theft and wind/hall

- The opportunity in theft appears to be $42 million or 23%

- Non-CAT wind/hail has a $39 million or 28% opportunity. Reinspectlons suggest the opportunity could be much higher. Opportunity appears to be consistent for both Allstate claim reps and independent adjusters

- The team was unable to fully capture the CAT wind/hail opportunity due to the lack of information in the files, but it appears to be substantial•. This opportunity will be addressed by the CAT team

• The largest opportunities exist within the evaluation and coverage process steps. Significant opportunities also exist in theft around fraud and subrogation

- Within these process steps, opportunity drivers focus around improper or nonappllcation of basic adjusting techniques for both perils

- Although the size varies, significant opportunity exists for almost all claim handlers

• CFA scan revealed $70 mUDon or 16% opportunity In CAT wlnd/han

003047-02Jj</tpnCH

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Economic opportunity of approximately $42 million exists in theft losses.

OVERALL THEFT OPPORTUNITY

$ Millions; percent

100%=

$5,000+

2,501-5,000

1,001-2,500

100-1,000

185.5

34

25

27

14

Total paid loss and allocated expenses

• Based on C074 audit of 5 CSAs

··-· .. --····--

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Source: CFR scan; OIS; C074 audit; working team analysis

41.9

50

25

14

11

Opportunity

003047 -02.'ljs/tpnCH

23% opportunity

3

H000000743

Based on the CFR scan results, approximately $39 million of opportunity exists in non-CAT wind/hail claims.

OVERALL NONCAT WIND/HAIL OPPORTUNITY

$ Mi11ions; percent

100%= 136.1 38.7 ..--------.··-··········-.. ·····.--------.

$2,501 +

$1,501-$2,500

$751-$1,500

$100-$750

42 40

26 31

1--------1·-······· ···----1--------t 19 15

1--------l-·······-·--·--··+---------1 13


14

Opportunity

• Based on C074 audit of S CSAs

5-0urce: CFR scan; OIS; C074 audit; working team analysts

28% opportunity

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"

However, reinspecHons suggest the opportunity in non-CAT wind/hail claims is closer to $65 million.

OVERALL NON-CAT WIND/HAIL OPPORTUNITY FROM CFR VS. FROM REINSPECTIONS

CFR

Reinspections

Overs.II opportunity Percent

I I I I I

28

48

... 71% increase

Source: C FA; Field Relnspeclions; wo!klng team analysis

Overall opportunity $ Millfons

38.7

65.3

003047 -023js I tpnCH

5

H000000745

_,

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0

= -y.

Both the CFR scan and reinspection results suggest the opportunity in non-CAT wind/hail is the same for Allstate and independent handled claims.

OOJM7--02Jj•/tpnCH

WIND/HAIL OPPORTUNITY FROM CFR AND REINSPECTIONS BY PRIMARY CLAIM HANDLER•

Percent

Allstate

Independents

Flies handled

···-· --·- - . ~ -~ :: : :.: : .. : -. -. . . . . . . - -... -- ....

•:.

26 . . ..... ~ ·.: !

36

Opportunity

64

Primary clafm handler is defined as the parson who handles lhe evaluation step of the claim

Source: CFR scan; Field Relnspectlons; wortdng team analysis

j<::=::! CFA scan resuhs

CJ Reinspection resulls

48

48

6

H000000746

,.

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0 _n _n

-· -' -,

KEY FINDINGS

• The CFR Scan uncovered significant opportunity in both theft and wind/hail

- The opportunity In theft appears to be $42 million or 23%

G·

- Non-CAT wind/hall has a $39 million or 28% opportunity. Reinspectlons suggest the opportunity could be much higher. Opportunity appears to be consistent for both AHstate claim reps and independent adjusters

- The team was unable to fully capture the CAT wind/hail opportunity due to the lack of information fn the files, but it appears to be substantial•. This opportunity will be addressed by the CAT team

The largest opportunities exist within the evaluation and coverage process steps. Significant opportunities also exist In theft around fraud and subrogation

- Within these process steps, opportunity drivers focus around Improper or nonapplication of basic adjusting techniques for both perils

- Although the size varies, significant opportunity exists for almost all claim handlers

CFR scan reveated $70 million or 16% opportunity In CAT wind/hall

003047 -Ol:ljs/lpnCH

7

H000000747

~·

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The largest buckets of opportunity for theft are evaluation, coverage, fraud, and subrogation. In wind/hail claims opportunity exists primarily in evaluation and coverage.

OPPORTUNITY BY PROCESS STEP

Mitigation Coverage Fraud Evaluation Subrogation

Theft*

$Millions 0.0 11.3 7.7 16.9 6.0

Percent 0.0 6.1 4.1 9.1 3.2

Wind/hall

Non-CAT

• $Millions 0.7 13.3 0.4 22.4 2.0

•Percent 0.5 9.8 0.3 16.5 1.4

l\

. Adjusted by quartiles

Source: CFR scan; OIS; working team analysis

003()47-1123js / tpnCH

41.9

22.6

38.8

28.5

8

H000000748

The primary driver of both theft and wind/hail coverage opportunity is failure to analyze coverage.

COVERAGE OPPORTUNITY

Peril Key drivers/Issues Description/example

Theft • Coverage analysis not addressed •Coverage issues ignored (e.g., single female living

• Other insurance

Wind/hall • Coverage ana~sis not addressed

• Improper policy interpretation

• Multiple losses

"

alone reports 3-4 men's suits were stolen from her house, no attempt to verify ownership)

• Paid for dwelling loss with no indication of damage

• Lack of investlgation for additional coverage

•All damages covered • No consideration of coverage issues:

• Policy settlement options not properly applied (e.g., $2,500 FRC optron)

• Misapplication of sudden and accidental (e.g., roof leaked various times, damaging drywaO; interior loss covered, despite not being sudden and accidental)

• Loss not reported promptly, but covered

• Roof damaged by various hailstorms; all losses covered under same claim

9

H000000749

. ;

~ '-•

fn theft files, adjusters failed to address coverage issues primarily when analyzing structural damage. However, the 5 percent of the time when they did not address contents coverage issues drove opportunity. Coverage analysis in wind/hail claims is frequently lacking for both structure and contents losses.

003047--02.'.ljs/lpnCH

OCCURRENCE OF COVERAGE ANALYSIS IN FILES WHERE COVERAGE ISSUES EXISTED

$ Millions; percent

Structure

100% = 38

Theft

100% = 105

Wind/hall

Source: CFR scan; worlllng team analysis

Contents

100% = 58

100% = 27

I:: ::::j No coverage anarysis

c:::J Coverage analysis occurred

10

H000000750

' , , , ' ,-;

·~ ~

'" ~· ~

'" '' "' _,

~ .... _,. _,,.

0 n n

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In theft files, adjusters most frequently failed to investigate other insurance and exceeded internal limits. In wind/hail claims, multiple losses occur most often. The largest opportunity appears to be in improper policy interpretation.

COVERAGE ISSUES DURING CLAIM HANDLING

Percent

Occurrence Theft

Other insurance 13 (i.e., Allstate auto policy)

Internal limits exceeded 13

Personal property not covered 9

Wind/hail

Multiple losses 20

Exclusions not properly appHed 13

Improper poftcy interrrretation 13

Loss not reported promptly 11

Source: CFR scan; working team analySis

0030-l7·U2.'\js/tpn01

Coverage opportunity

8

3

3

16

20

30

16

11

H000000751

"

-"" ·' '·· ,_, ·::

.n

"

Por both theft and wind/hail, double-digit coverage opportunity exists for the primary claim handlers.

COVERAGE OPPORTUNITY BY TYPE OF CLAIM HANDLER

Percent

Theft Type of claim handler Coverage opportunity

Theft specialist 58 1----------'

25 1------'

Contents specialist 26 15

Homeowner claim rep 9 24 I-----'

Independents 51

Wind/hail

Dwelling specialists 24 25 t-------'

Independents 24 25 \I

Homeowner claim rep 20 44

Source: CFR scan; woi1dng team analysis

12

H000000752

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= "'-' __; J

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Fraud opportunity is driven by failure to investigate when fraud indicators exist in a file.

FRAUD OPPORTUNITY

Peril

Theft

Key drivers/Issues

• Lack of fraud investigation when fraud indicators are present

Descriptlonfexampie

• Little evidence that adjusters recognized fraud indicators

• Theft speclalists believe they will not be supported by management when investigating fraud claims

• SIU guidelines discourage transfer of files • SIU guidelines inconsistent across CSAs

!\

13

H000000753

,_

=

'~• . -" := = ·::> I>:::

OOW47-<l2ljs/tpn0!

Fraud indicators were present in theft files 48 percent of the time. In those files, adjusters failed to investigate fraud 94 percent of the time.

PERCENT OF THEFT FILES INVESTIGATED WHEN INDICATORS EVIDENT

Number of flies; Percent

100% = 106 files

No fraud indicators evident

,-------------------------------------------1 I I I Investigation Fraud I

f I

Fraud indicators evident

Not investigated

Investigated

occurrence opportunity Percent Percent

94 10

4 3

! ___________________________________________ _

'l

Source: CFR scan: working team analysis

14

H000000754

D03047-023js/tpnCH

Incorrect or no application of depreciation drives evaluation opportunity in both theft and wind/hail.

EVALUATION OPPORTUNITY

Peril

Thettcontents

Key drivers/Issues

• Incorrect or no application of depreciation

• Incorrect pricing

Wind/hall - • Incorrect or no application of structure depreciation

• Damages not related to loss

• Maintenance-related damages/repair

• Improper estimate calculation (including improper use of ACCUPRO)

Description/example

• No depreciation applied to 5-year-old microwave

• lnsured's inventory sheet price accepted without verification

• 15-year-old roof depreciated only 10%

• Tree fell on 1 side of house; damag~ on other side of house included in estimate and payment

• Roof replaced because it is worn out

• Incorrect/improper application of labor rate, overhead and profit, etc.

• Addition errors • Most adjusters inadequately trained to use

ACCUPRO correctly • Adjuster retyped contractor estimate directly into

ACCUPAO, causing double counting of labor, overhead, and profit

15

H000000755

-· >

Depreciation was improperly or not applied in almost half the theh filesIncorrect pricing occurred more than a quarter of the time.

THEFT EVALUATION ISSUES

Percent

Occurrence Opportunity

Improper or no application of depreciation

Incorrect pricing

Source: CFR scan; worl<ing team analysis

27

47 15

9

003~17--02.Jjs/tpnOI

16

H000000756

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'·:

Incorrect pricing appears to be driven by the fact that adjusters used only the insured's inventory sheets to price contents 35 percent of the time

THEFT PRICING METHOD DISTRIBUTION

Number of files; percent

Occurrence of pricing method

1 00% :::: 1 06 files

lnsured's Inventory only

Local store/shop

National vendor

Catalog

Sourc&: CfR scan; worklng team analysis

26

8

003047-021~•/tpnd-l

35

46

17

H000000757

Theft specialists evaluate the bulk of the~ claims and have the largest opportunity.

EVALUATION OPPORTUNITY BY TYPE OF CLAIM HANDLER - THEFT

Percent

Type of claim handler Evaluation opportunity

Theft speciaDst 56 25

Contents specialist 25 15

Homeowner claim rep 9 20

Independents 5 11

Source.- CFR scan; OIS; working team analysis

18

H000000758

= •:-"-J

In evaluating wind/hail claims, depreciation was mishandled most frequently. Nevertheless, a number of issues drove opportunity.

WIND/HAIL EVALUATION ISSUES

Percent

Occurrence Opportunity

Incorrect or no application of depreciation

Damages not related to loss

Maintenance-related damage/repair

Improper estimate calculation

Source: CFR scan; working team analysis

24

20

17

43 25

21

23

21

OOJM7-()2Jjs/tpnCH

19

H000000759

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=

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= .n

Improper use of ACCTJPRO drives opportunity. Lack of knowledge about ACCUPRO causes much of the improper calculation of estimates.

0030ot7 -023js /tpnCH

EVALUATION OPPORTUNITY BY STRUCTURE ESTIMATING METHOD FOR WIND/HAIL CLAIMS

Percent

ACCUPRO

Outside bides

Manual estimate

Other mechanical

Type of structure estimating system

20

15

r-

5 -

43

Evaluation opportunity

15

11

23

6

"

Team observation •Team observed very low

opportunity for claim reps who knew how to use A CC UP RO

• Opportunity was much higher for ACCUPRO users with little training

• Appears more adjusters are untrained than trained

,. _; Source: CFA scan; Interviews; working team analysis

20

H000000760

,-____.. .:::.:::

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Wind/hail evaluation opportunity is particularly high for all primary claim handlers.

EVALUATION OPPORTUNITY BY TYPE OF CLAIM HANDLER -WIND/HAIL

Percent

Wind/hail Type of claim handler Evaluation opportunity

Independents 26

Dwelling specialists 24

Homeowner clalm rep 19


' '

25

31

43

003047-<J23js/tpnCH

21

H000000761

" . '

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0 .n .n

OOJ047--023js/tpn0i

The primary driver of subro opportunity is the failure to recognize potential. However, even when the potential is recognized, adjusters fail to pursue it.

SUBROGATION OPPORTUNITY*

Peril Key drivers/issues

Theft • Lack of recognition

• Opportunities not pursued

I)

• Only 3 windlhait mes had subrogation potential

Description/example

• Diary occasionally stated that there was not subro opportunity before the claim rep spoke to insured

• Subro template checked off without actually examining subro potential

• In interviews, claim reps admitted they ignore subro opportunity because they do not have time to pursue it

• No follow-up/investigation of potential perpetrators, e.g., - Moving company "stole" items, no one followed up with

moving company - Diary stated that suspects were caught and convicted,

but adjuster made no attempt to follow up with police or courts

IJ

22

H000000762

'" ' 1• ..

·~·

:2-i

0031).17.023js/tpnCH

Subro potential was recognized in less than half of the files where it existed.

RECOGNITION OF THEFT SUBROGATION POTENTIAL


/~-----------------------------,

// I / I

// I 100%= 106files ,,// 100%:::40files I

~~~~< I

Su bro potential

No subro potential

'! ..... ;····· ·.·: -~ - . . ...... ~: .. -· ....... . [.;T383:}; . ····- ·······- ..

62

Theft files reviewed

\ \ \ \ \ \ \ \ \ \ \ \

Source: CFR scan; working team analysis

\ I\ \ .

Not recognized

43 Recognized

I I I I I I r I I I I I I I I I I I I

\ , I \ ' \ _____________________________ J

23

H000000763

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= 'CJ

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Once the potential was recognized, it was only pursued 29 percent of the time.

PURSUANCE OF THEFT SUBROGATION POTENTIAL


100%=

Recognized

Not recognized

106 files

. -. . . -.. -.......... -·

57

Files with subrogation potential

Source: CFR scan; working 1eam analysis

Q03().t7 .Q23js I tpnCH

24

H000000764

L ~ ......

=

,-;

0

= ·=

,._

In many files the subro investigation procedure was not properly followed.

ISSUES WITH SUBROGATION INVESTIGATION

Percent

Theft

Procedure not properly followed

Theory of liability not developed

File not referred to National Property Subro Office

Source: CFR scan; OIS; working learn analysfs

Occurrence of pricing method

14

7

3

Evaluation opportunity

' '

5

3

003Cl47-02Jj•/lpnCH

37

25

H000000765

''·' '

'-" :--=:i .~

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Opportunity varies by claim handler in subrogation.

THEFT SUERO OPPORTUNITY BY TYPE OF CLAIM REP

Percent

Occurrence

Theft specialist

Homeowner claim rep 8

Contents speciarist 5

Dwelling specialist 2

Source: CFR seen; working team analysis

003047 -023js/ tpnOi

Opportunity

17 14

I 8

12

Is

26

H000000766

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Appendix

003047--023.Amcm/tpnCl [

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H000000767

0 ::_n n

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OPPORTUNITY MEASUREMENT PROCESS STEPS

HIT process steps

Issues • Calculation of opportunity too subjective

Design Team process steps

Issues • Eliminated due to subjectivity

Investigation

• Includes elements of coverage, fraud, evaluation, and recovery

• Drove opportunity

• Combined relevanl pieces with coverage, fraud, evaluation, and subrogation

Fraud

• Calculation • Overlaps of with opportunity evaluation too subjective

• Eliminated • Combined due to with subjectivity evaluation

' '

0031J.17-023.Amem/tpnCH

Litigation Recovery CAT

Calcuration • Primary • Limited of opportunity information opp-0rtunity in subro available In loo (salvage many files subjective recovery

• No potential opportunity very smalf} identified by HIT team

• Eliminated • Focused • Created due lo small recovery separate size and·' on subro- team to subjectivity gation address

CAT processes

A-1

H000000768

I I I

CAT WIND/HAIL OPPORTUNITY

$ Millions; percent

CFR results

100% "' $430.8 million

Relnspectlon results*

100% = $430.8 million

Based on 59 reinspectlons lrom 6 CFR scan sftes

Source: CFR scan; working team analysls

003047--023.Ainem/lpnCll

CJ Opportunity

• Opportunity ,identifled in CFR scan is limited due to lack of infonnation in file

• Wind/hail CAT opportunity to be assessed by CAT team through reinspections

A-2

C• ,, .......

r_c,

•Lo •::r1

C•

=

z .=

H000000769

•I"•

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OPPORTUNITY BY MCO

Percent

Theft

MCO 1 MC02

Wind/hail

39

MC03 MC04 MC05 MC06

42 34

----- ----26·---- ---- ---- 21---- ------------- Average= 28% 18

MC01 MC02 MC03 MC04 MCOS,, MC06

Source: CFA scan; working team analysis

A-3

H000000770

= c5 =

'.;

= = =

MOST FREQUENTLY OCCURRING THEFT FRAUD INDICATORS

Percent

Insured unable to provide proof of ownership

Suspicious circumstances

Excessive valuation

No forced entry

Prior losses/Pl LR/SIU

Inconsistent statement of facts/ inventory different from police report

Insured pushing for quick settlement

Insured cannot provide receipts fro recent purchases, but can provide receipts for old items

Source: CFR scan; wor1dng team analysis

j 13

j 12

I 10

Is Is Is

003-0-17-02J.Amcm/1pn01

I 27

J20

I,\

' '

A-4

H000000771

CONFIDENTIAL

Initial Findings From CAT Sites Scan

ALLSTATE

Team debrief

This report ls solely for the use of client personnel. No part of II may be c:irculared, quoted, or reproduced for distn"bu!ion outside the client organizalion withmll prior written approval from McKinsey .SC Company.

= = en

z = "'° = =

H000000772

()03047--025csd/larCH

CAT HANDLING REVIEW ACTIVITY TO DATE

• Visited 6 MCOs

• 2 special CAT handling locations

• Conducted 90 reinspections of major CAT ($15+ million} losses

• Comple1ed 100 closed file reviews of CAT losses

• Conducted 29 customer interviews

• Conducted selected employee interviews (e.g., CAT managers, QCRs, examiners, pilot adjusters)

1

= = en

'"""' """ = = = C> >-3

= z

= = ~

H000000773

CATASTROPHE EARLY ANALYSIS

'II A combined 221 CAT CFRs and reinspections have been completed to date.

• Based upon early findings, there is significant opportunity in catastrophe loss handling. Total opporhmity is 33.2 percent.

'][ The major driver of opportunity is evaluation. The key issues are scoping. estimating techniques, and timing.

'i Coverage also represents signillcant opportunity, and poor understanding or application of poUcy coverage being the key.

'II Initial customer interviews indicate we can enhance customer satisfaction in a number of areas. '

= " 003047-025Clld/l;nCH :--3

PRELIMINARY

2

= = =

" =

z = = = .-

H000000774

CATASTROPHE OPPORTUNITY EARLY ANALYSIS

Percent

From reinspectlons

From CFRs0

322

90REls

CAT1

26.6

34.6

29 REls

CAT2-6*

13.5 10.2

LOC1 LOC2 LOC3

• CAT 2-5 represents relnepections performed rn original CFR locations .. Based on 6 MCOs within 6 CSAs: sample Blze varied from 6-20 files

15.9

LOC4

Overall opportunity identified in reinspections is significant

Gap in opportunity identified between reinspections and CFR is believed to be driven primarily by the lack/limit of data available in CFR ,

19.2 16.2

13.7

LOC6 Total

3

= = en

0 z

= = """

H000000775


'if A combined 221 CAT CFRs and reinspections have been completed to date.

• Based upon early findings, lhere is significant opportunity in catastrophe loss handling. Total opportunity is 33.2 percenl

'II The major driver of opportunity is evaluation. The key issues are scoping, estimating techniques, and timing.

'JI Coverage also represents significant opportunity, and poor understanding or application of policy coverage bemg the key.

'if Initial customer interviews indicate we can enhance customer satisfaction in a number of areas.

003047-025ad/larCH

PREUMINARY

4

= ~ :--3

= = en

z .=

'""' = =

H000000776

Significant economic opportunity exists based upon both the dosed file review and reinspection results.

OVERALL OPPORTUNITY IN CAT HANDLING

$Millions

• -:r '.r ..... .-·: .. ~ . -----·----·...-----~

... ·I.:··· ..........

Re inspections 33.2%

.. ~. : : : • . i •..

·; ~ .. ,·... ·: -

· .... :.· ....... . ·: . : : : : .- -~:'-

--, __ --..-----,----,---__,

... ---· - -

··:'.~'.:<:: ., . F---'..;.;...---''~~-+ ....... ________ -:~: ··::· ~--:=:=:;·;

............ ,_._. ·._;_-'·--.·: ._ • .;_,' ·.;._:. :.:.=: -'!

CFR 16.2% 202 178 147

5-year average 3-year average 1996 annualized

CAT $ paid 1 ,244, 168 1,098,nB 908,699

Including exp.

Source: OIS; Total property- all perils

003047-025""1/larCH

5

= ,, :-->

= = =

0--0

""' = = c::: " ..... = =

= .=

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H000000777

Both the CFR and rcinspection process identify coverage and evaluation as the big buckets.

CAT OPPORTUNITY BY PROCESS STEP

Mitigation Coverage Fraud Evaluation Subrogation

100CFR

121 REI

0.8% 3.5% 0 11.5%

n/a 7.3% n/a

• The identification of opportunity in the big buckets is significantly more dramatic through the reinspection orocess

Souroe: CFR scan; reinspections; team analysis

0.4%

n/a

003047--025csd/latCH

= 16.2%

= 33.2%

6

= " >-3

[-......_ ....

= = = en

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" = = = '""""' = = >-3

'""""' = = = c::: " >-3

= :z:

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H000000778


'JI A combined 221 CAT CFRs and reinspections have been completed to date.

• Based upon early findings, there is significant opportunity in catastrophe loss handling. Total opportunity is 33.2 percent.

1 The major driver of opportunity is evaluation. The key issues are scoping, estimating techniques, and timing.

'If Coverage also represents significant opportunity, and poor understanding or application of policy coverage being the key.

'II Initial customer interviews indicate we can enhance customer satisfaction in a number of areas.

003047-025cld/larCH

PRELIMINARY

7

= = en

"° = =

H000000779

Based upon the early analysis, there are three areas which effect evaluation of catastrophe losses.

DRIVERS OF OPPORTUNITY IN EVALUATION

Issues

Scoping

Estimating techniques

Timing

Description

•Alternative repair methods • Roof replacement is too often standard vs. repair • Unnecessary replacement of roof vents • Fences written to replace vs. repair • Excessive allowance for tree and debris removal

• Writing damage where none exists • Inappropriate use of unit costs . • Multiple minimum charges on same estimate for same or similar

trades •Lump sums • Little or no verification of paid bills

• Adjusters do not Immediately complete estimate after initial scope and inspection (up to 2 weeks)

• Errors due to time and memory lapses

8

= = =

= z

"" = =

H000000780

'No damage" and "alternative methods of repair" make up 12.1 percent of total opportunity.

MAJOR AREAS OF OPPORTUNITY IN EVALUATION

Percent

No damage•

Alternative method of repair"

Measurements

Depreciation, ACV/FRC

Ma1erial cost

All other••

1--------__.j s.1 Q

1--------'16.0 Q :;·.>=~ :·_:: '(: '. : ll 3.3

f_:·<::=::~·. ::=;_<:\;:·_13.0

: : . :·:::: ::,> ,=12 2 :: . .-.~~~==.--.:::~ . .-J .

• Roof vents, turbines, etc. • Roof shingles, fences

• Repair roof vs. replace • Section fence vs. replace

• There Is a relationship between no damage and alternate and alternate method of repair. Depending on who did the reinspection, there is some spillage from one to lhe other The remaining 6.3% opportunity is spread over 10 other evaluation categories

Souroe: Field reinspeclions 9

= = =

= .=

""' = =

=

H000000781

The drivers identified by the CFR represent areas of opportunity classified as "all other" on the previous page, due to the inability fo the CFR to capture some of the more pertinent drivers. Th.is also explains, at least in part, the dj:;crepancy in total opportunity identified.

STRUCTURAL EVALUATION ISSUES IDENTIFIED IN CFR - CAT ONLY

Percent

Occurrence* Percent opportunity

Incorrect or no application of depreciation

,_

Maintenance related 8 change/repair

......

-Improper estimate 9 calculation

~

• Percent occurrence in !Ees with structural evaluation only Source: CFR

44 13

15

22

003047-025csd/ latCH

10

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"° = = = c-. -"

= =

= p

'"' = = _o-u

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H000000782


'l[ A combined 221 CAT CFRs and reinspections have been completed to date.


'j[ The major driver of opportunity is evaluation. The key issues are scoping, estimating techniques, and timing.

Q 'I Coverage also represents significant opportunity, and poor understanding or application of policy coverage being the key.

'II Initial customer interviews indicate we can enhance customer satisfaction in a number of areas.

PRELIMINARY

11

= = =

r0

= =

.>-c>

=

H000000783

The initial CAT scan indicated several drivers in the coverage step.

DRIVERS OF OPPORTUNITY IN COVERAGE

Issues Description/examples

003047-02St-sd/1ArCH

= = =

Trees/tree debris • Excess amounts paid for removal of trees from covered property

Covered property

Multiple losses/old damage

• Debris removal paid when there was no damage to covered property

• Paid for nonowned property (e.g., neighbor's fence, fence around school yard)

• Paid for surface water damage to contents • Paid for several food spoilage losses - no on premises power

interruption - no coverage in this state

• Paid for 8 windows in which cracks were filled with paint • Gutters included that had end caps cut off prior to loss • Paid $732 for screens on a porch tom by children • Paid for old, fogged-up thennal-pane windows

12

""' = =

H000000784

Reinspections indicate a 7.3 percent opportunity in coverage.

COVERAGE Percent

Multiple losses/old damage

Coverage determination

Deductiole application

\<

3.7

1.9

1.7

003M7-ll25c;d/JarCH

13

= = en

"" = =

H000000785

11

COVERAGE ISSUES IDENTIFIED IN CFR - WIND/HAIL

Percent

Multiple losses

Improper policy interpretation

Loss not reported properly

Exclusions not properly applied

Personal property not covered

• Percent occurrence In all files reviewed

Occurrence*

14

7

8

4

4

CAT ONLY

Percent opportunity

11

21

11

49

13

003M7-025csd /larCH

14

= = =

= p

"" = =

H000000786

On a large proportion of claims, coverage analysis was not completed.

COVERAGE ANALYSIS COMPLETED ON STRUCTURE ELEMENT OF CLAIM

Percent

Source: CFA scan

100% = 167 files

Coverage analysis completed

No coverage analysis

I/

15

= = en

.. '-'-' = ~

z .= "" = =

H000000787

When on-site inspection was not performed, the opportunity was significantly greater.

ON-SITE INSPECTION COMPARED TO COVERAGE OPPORTUNITY - CAT ONLY

Structure

Could not tell

No

Yes

255 files 3

21

76

On-site inspection


$ ·-·-·······-····· ·-·-·······-··-·

~ ,, ',,

4

41

55

Coverage opportunity

003047--025csd/larCH

16

= = =

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H000000788

Although the sample size is small, coverage as it relates to contents represents a significant opportunity.

CATASTROPHE EARLY ANALYSIS - CONTENT

PERCENT

Relnspectlons*

100% = $6, 181

Opportunity

• Based on 10 contract reinspections

• Food spoilage • Water damage • Depreciation •Old damage

003047-025csd/larCH

17

= " :-3

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'I A combined 221 CAT CFRs and reinspections have been completed to date.


'II The major driver of opportunity is evaluation. The key issues are scoping, estimating techniques, and timing.

'll Coverage also represents significant opportunity, and poor understanding or application of policy coverage being the key.

Initial customer interviews indicate we can enhance customer satisfaction in a number of areas.

003M7-025cod /larCH

PRELIMINARY

18

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H000000790

Based upon interview with 29 customers, there is opportunity to enhance customer satisfaction during catastrophe.

OPPORTUNITIES IN CUSTOMER SATISFACTION

Issues

Clear explanation

Informed

Hassle free service

Description

• Some customers did not understand settlement • Adjuster not explaining scope

• Customers unsure of when to expect copy of estimate and check • Some adjusters stockpiling scopes - creating delays in settlement -

customers unsure of why It takes so long to get copy of estimate

• Multiple transfers of assignments create confusion for customer • Concern with the lack of prompt responses to inquiry calls • Customers had difficulty connecting with someone who could answer

questions

Source: Customer oorvice and catastrophe personnel

003047.(]25csd/la.CH

19

= = =

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MOVING FORWARD

• CAT subteam formed

• Two new team members added from NCMT

• Additional sites selected for further CAT review and analysis

• A plan is being developed to examine other areas of CAT claim handling. The focus will not be totally on reinspections

\

003047-02Sr.sd/larCTI

20

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\/

Appendix

003047-025csd/larCH o "

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Ii

CATASTROPHE REINSPECTION OPPORTUNITY

Paint

Clean vs. repair

Overlap

Equipment

Multiple losses

Labor rates

Repair vs. replace

Appearance allowance

ACVvs. FRC

Missed damage

Judgment time

Deductible

Coverage

Material cost

Depreciation

Miscellaneous

Old damage

Measurements


No damage

ii:'• .. •

20

133

0400

~425 :J739

0960 01,104

01,339 l 1,789

12,172

12,936

13,881

14,215 14,946

14,960

15,496

16,136

17,588

'

I

I 13,587

13,742

•

000047-lJ25ald/larCH

Ii

22

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H000000794

CONFIDENITAL

Fire Process Assessment

ALLSTATE INSURANCE

Debrief

October 30, 1996

This report ls solely for the use of clienl personnel. No part of it may l:ie circulated, quoted, or reproduced for distribution outSide the client or~at:iao without prior written approval from McKlnsey &: Company.

n =

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'•

• Introduction ,,

• Summary of the opportunities

• Evaluation

• Subrogation

c c

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The fire team visited eight CSAs in a 2-week period, conducting closed file reviews, reinspections,o and employee interviews.

ACTIVITIES TO DA TE

• Reviewed 190 closed files from 4 gap and 4 nongap sites

• Conducted 24 reinspections

• Interviewed over 32 field personnel

• Our analysis is based on ex-CAT dollars, OIS data for 1993-95, CAGR-based predictions for 1996, C74 audit rT sample CSA), and Houston File Review

003047-02lsjs/js0l

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KEY LEARNINGS

• The team identified large overall opportunity in the fire peril, representing $135 million on an annual basis

• The bulk of the opportunity in fire is in fires larger than $15,000 {major fires)

• By process steps, the opportunity is primarily driven by 2 areas, namely

- Evaluation (structure and contents}

- Subrogation

3

= = = I

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• lntroducUon


• Evaluation

• Subrogation

4

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H000000799

The tota1 non-CAT projected fire expenditures for 1996 are $515.4 million.

TOTAL FIRE LOSSES 1993-96E*

$Millions

Allocated expenses

Paid losses 450.8

1993

Includes owner, CIR lines (non-CAT)

489.4 12.0

1994

Estimate for 1996 based on 1993-95 (CAGA = 3.9"k) Source: 015: team analysis

-···-·····-· --------·-495.9 11.9

484.0

1995

515.4 13.8

501.6

1996E

_t

003047-021sjs/j.cH

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u

5

H000000800

= = =

While only 20 percent of the fires are major losses over $15,000, major fires represent the majority of the opportunity, as well as dollars spent nationwide.

OPPORTUNITIES BY SIZE OF Loss· $ Millions; percent

100%=

Major loss >$15,000

s Medium los $2,500-15,0

Small loss <$2,500

00

• Based on 7 CSA audit

20,650*

20.5%

30.0

49.5

Percentage of claims by size of loss

,:

··----··-····-

\ \ \

\ \

\ ' \ \ ' \ \. ' \ \

\ \ ' ' \ \

\\.

Source: OIS, C74 Audit of CSA File Distribution by Loss Size

$515.4

72.6

21.4

~n

Total dollars paid by size of loss

-··-·············

··--··-·····-·-

······-··-······

134.9

$99.7 (73.9%)

26.8 (19.9) 8.4 !6.21

Opportunity dollars by size of loss

003047--021sjs/l

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Over 75.3 percent of the total opportunity dollars, or $101.6 million, can be attributed to evaluation (structure and contents) and subrogation.

FIRE OPPORTUNITY BY PROCESS STEPS

Evalu- Evalu-Evalu- atlon of Evalu- atlon of E11alu- Eva\u-allon of structure atlon of con\enl& allonof allon of Nego-

Ml ligation Coverage Fraud structure clean Ing carpet ctaan\ng c:ontenls ALE llallon

Abs.olute 0.98 0.71 0 6.29 1.01 0.72 1.23 6.05 0.60 0.61 opportunity Percent

Relal\ve 3.70 2.70 0 31.70 3.90 2.80 4.70 19.30 2.30 2.30 opportunity Percent

Projected S.05 3.66 0 42.73 S.21 3.71 6.34 26.03 3.09 3.14 saving& $ Milltons

• Total amount paid on CFR claims $2,722,730 Source: CFR;01S

Subro-gation Sa!Vage

\.ltigatlon recovery recovery

0 6.37 0.61

0 24.30 2.30

0 32.83 3.14

~ =26.18

=100.00

=134.93

7

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Evaluation alone corresponds to over $68 million of the total opportunity, while subrogation contributes over $32 ntlllion.

LARGEST OPPORTUNffiES BY PROCESS STEP - EVALUATION AND SUBRO

$Millions

68.6

Evaluation•

a--6

·---········

Subrogation/ recovery

I 11.6

CleaningH

.----··-··-····· I l I 21.7 I

1··--·-·-·-'- ----'

Other*"*

134.9

Total fire opportunity

• Evaluation consists ot evaluation of structure and contents only, and excludes cleaning, ALE, and carpet

Cleaning includes contents and structure cleaning

other includes mlligalion, evaluation ct caipet and ALE, coverage, and negotiation, wt\ich are all comparatively small opportunities {:>$5 million)

Source: OIS; team analysis

8

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Major fires have the largest opportunity, especially in contents.

EVALUATION AND SUBROGATION OPPORTUNITIES BY SIZE OF LOSS

$ Millions; percent

100% = $134.9

Major fire (+$15,000)

Medium fire ($2,500-15,000)

Minor fire

Source: CFR

73.9%

19.9

6.2

Total opportunity by size of loss

42.73 26.03 32.83 ··-·········· ·---·-···· .. -···-·····

75.5 81.3

95.2

--········--\

19.9 "\ ,./ 14.4 '· / ··-··-··-· ,_ _,___ ~\ _v· . -4.3-4.6 ··-··-.. ~1.4;;3.4_ •... -----

Evaluation of structure opportunity

Evaluation of contents opportunity

Subrogation opportunity

003ot7-ll2l&js/js(:fl

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H000000804

• Introduction


• Evaluation

• Subrogation

003047--02Jsjs/j&Ol

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EVALUATION

C)~+ Key opportunity

Evaluation of structure drivers

Evaluation of contents

Key opportunity drivers

11

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There is a significant opporhmity in the evaluation of both structure and contents.

STRUCTURE VS. CONTENTS OPPORTUNITIES •N EVALUATION

$ Millions; percent

100%= $444.0

Contents 29.3%

($130.2)

Structure 70.7% ($313.8)

Losses*

·-··--·-······-·-·······-

................... ·--... __ ·-.

$68.B

37.9% ($26.0)

62.1% ($42.7)

Evaluation opportunity*

The estimates exclude cleaning, ALE, and some other expenses, accou11ti119 tor "14% ol total fire expanses Source: CFR

12

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Opportunities in the evaluation of structure are driven by three key factors.

EVALUATION OF STRUCTURE - KEV DRIVERS

• The opportunity in the evaluation of structure is, primarily, driven by

- Improper scoping of the fire loss

- Lack of estimating fundamentals

- Paying full replacement cost instead of ACV

• There are significant opportunities in the evaluation of structure for both Allstate and non-Allstate resources

003047-Q21sj&/jsCH

13

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A fundamental issue in scoping js the desire to bring claims to a speedy closure ~ r\. .... _ +Q without supplements. , L::J ~

~

SCOPING ISSUES IN STRUCTURE EVALUATION

Issue

•Timing

Description

• Timing is geared towards speedy closure in order to ensure pending control - Trying to limit presence on site to one visit

• Scoping is often done upfront leading to - Wrlting unseen damages - Limited mitigation

• Clean vs. replace decisions • Scope Is prepared at initial inspection with focus on replacement -Writing scope geared towards claim conclusion without supplements

• Lack of alternative repair methods

- Limited attempts to clean • Scoping often done by non-Allstate people

- Referred vendors often making decisions on clean vs./ replace and perform both cleaning and repair/replacement activities, which limits their Incentive to make the right decision on clean vs. replace

• Lack of direction for cleaning vendors -Vendors often not told what to do - Sometimes they clean and then we replace

• 1 cabinet door, but we paid to replace all cabinets; on the reinspection, found that alternative repair method existed which would allow to repair just 1 door

Source: Team analysis of the reinspections; CFR

_c-;

14

H000000809

= = en I

003047-021sjs/jsCH = .,..,,

Although it is difficult to quantify the exact share of opportunity dollars based ~ r\11•a.i-+Q on the fire CFR, evidel'lce points to improper scoping as a key driver of L___:J "-'f

:-J

structure evaluation opportunity. t

KEY DRIVERS - IMPROPER SCOPING

$Millions; percent

100% = 180 ··-··-···-· .. ·-·-

Yes 37.8% //

No 62.2%

Was the scope proper?

Source: Team analysis of the lire CFR

$42.7

12..8%

87.2%

Opportunity in structure evaluation

Improper scoping drives disproportionate share of the structure evaluation opportunity

15

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H000000810

On almost 18 percent of the evaluation of structure dollars (or $56.2 million), cleaning was not attempted although it should have been.

SCOPlNG ISSUES - STRUCTURE CLEANING VS. REPLACEMENT

$ Millions; percent

Yes

No

$313.8"

75.7%

24.3%

Was cleaning attempted?

• Total structure evaluation dollars

$76.3 ..

26.3%

Should ft have been?

•• Structure evaluation dollars on which cleaning was not attampled

$25.2

••• Structure evaluation dollars on which clearing was not attempted, but should have bean

Source; OIS team analysis of the CFR

003D47-02bjs/jsaf

Gq••-+O

I: . .- :] Shoold have been cleaned, but was not

16

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There are several issues related to fundamental estimating skills.

KEY DRIVERS - ESTIMATING FUNDAMENTALS

Issue

• ACCUPRO

•Overlap

• Submitted bids

•LKQ

Descrlption

• There appears to be a learning curve on ACCUPRO, and as a result, its full potential has not bean realized - Lack of technical-related skills -lack of understanding/skills on estimation

• limited use of ACCUPRO on site

• Not deducting for openings, doors, etc., while paying to clean and paint them • Multiple minimum charges in the same estimate, e.g., 3 drywaU minimum charges

in different rooms in the same estimate

• Lump sum, single bids, or combo -Adding electrical or plumbing estimate as the last line of ACCUPRO ("replace

plumbing: $3,000")

•Upgrading -At no extra cost to insured, replaced old metal cabinets with new high-quality

wooden cabinets

Source; Reinspeotlons; inlerviews; CFR

17

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There are significant issues related to the current usage of ACCUPRO.

ACCUPRO SETTLEMENT

How it should be done

Gq••-+O

c> = Prepare ACCUPRO estimate (prefer on-stte)

Agreed price with contractor or Lnsured Claim settlement

How it ls being done

Prepare ACCUPRO estimate

Prepare ACCUPRO estimate

Issues

• Lack of accuracy of scope/technical stand

• Limited on-site estimate • lack of ACCUPRO

understanding (mechanics of system)

Source: Reinspectlons; Interviews

Contractor submits bid (at direction of customer or us)

Compromise ACCUPRO estimate to meet contractor's estimate

OR •••

No contractor bid submitted

From the beginning, estimate overscoped and overestimated

• Lack of confidence in adjustor's ability • Lack of confidence in ACCUPRO • lack of negotiation/communication skill • Desire to rapidly close •Lump sum

Claim settlement

Claim settlement

18

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Reinspections show that overlap, lump sum bids, and LKQ are among the top ~ r\ .... ,_ +Q opportunities in the evialuation of structure. L:J LJf

ESTlMA TING ESSENTIALS Percent

Reinspections = 18% overall opportunity

Sour4:e: Reil'ISpeclioos; team analysis; CFR

Areas of opportunity

Missed mitigation

Clean vs. replace

(#;:;I Estimating fundamental it>sues

20

15 ;:;:c:::-;:~"""'=-,,--.....,.,..,..-,.....,.~~

Measurement


Coverage

No visible damage

Depreciation

Repair vs. replace

Labor rates

5

5

4

3

2

2

1

19

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003M7-021sjs/JsCH

Over seven percent or more than nine million dollars could potentially be saved ~ r\ ... - ... Q if ACV was initially paid instead of FRC. 1--.:J 'T/f

~

FRC VS. ACV - STRUCTURE

$ Millions; percent

$129.0* ------- r

f'.~;;j Potential savings

$9.3 :>;z-:t·;,· J $119.7 ... ·--····1

11.8% I .......... C4.6%::J··-······ ··········-

100%

Initial FAG payment

Average depreciation if the amount were paid ACV ..

Customer's claim back**

ACVvs. FRCsavings

92.8%

Total payments if the amount was paidACV

• The figure based on the fire CFR estimate that FRC payments comprise 41.1% ot the tote.I initial payments

" From the HoUSlon Fiie Review ( 1994-95) Source: Houston File Review; OlS; team analysis ot the fire CFR

20

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EVALUATION

L)~+ Key opportunity


L)~+ Key opportunity

Evaluation of contents drivers

21

= = =

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H000000816

More than 50 percent of the structure dollars are being evaluated by non-Allstate sources. Major fires are more likely to be evaluated by QVP and vendors than smaller ones.

~

USING NON-ALLSTATE SOURCES

Number of claims; $ millions handled; percent

100% = 185 claims

Structural adjustor

IA, Pilot Homeowner

Vendor

QVP

58.9%

$313.8

45.7%

Who did the scope

Source: OIS; team analysis of Ina CFR

185claims $313.8

49.9%

65.9%

Who did the estimate

~ Non-Allstate

22

= = =

= =

,-,_,

H000000817

Almost half of the total opportunity in the evaluation of structure comes from ~ r\ ~ +-QVP and vendors. i__::I .._.v--

OPPORTUNITY IN EVALUATION OF STRUCTURE

$Millions

Percent opportunity*

$11.0

OVP

•Scope 16.7 • Estimate 15.4

·········-

G~J---o.•---2

Vendor

15.6 17.7

Homeowner

7.0 5.7

• Oefined as dollar opportunityfstructure evaluation payments

Source: Team analysis of the CFA

I 3.1

IA, Pilot

13.6 13.6

I ···-····

17.0

Structure adjuster

11.5 , 1.1

42.7 --········-

Total structure evaluation opportunity 13.6

23

= = =

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EVALUATION

C)~+ Key opportunity



Key opportunity drivers

!J()3047-02lsjs/js0i

24

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Opportunity in contents is large and primarily driven by the fact that in major • r\ ""'-- Q fires, contents and prices are usually listed by homeowner, with little or no ._,v- + control asserted by Allstate_ = = en

~

EVALUATION OF CONTENTS

• Contents is a large, although often times neglected, opportunity, especially in major fires. In order to capture the opportunity more emphasis is needed on

- Inventory of contents

- Cleaning and repair vs. replacement

- Research of replacement costs

• In developing new processes, one may benefit from the fact that there are similar issues in the evaluation of structure and contents such as

- Scoping/inventory

- Estimating fundamentals

- FRCvs. ACV

Soun:tt: Team analysis of the CFR, reinspections, interviews

25

= =

.= "-'' = =

H000000820

003047-021.ijs/jsCH

Contents evaluation currently lacks attention. In order to pursue the opportunity related to•contents evaluation, contents specialists may be needed, especi:lly on large fires.

Ii

EVALUATION OF CONTENTS - ISSUES

Issue

Contents evaluation lacks attention

Inventory of contents

More emphasis needed on cleaning and repair vs. replacement

Research replacement cost

Description/examples

• Contents specialists do not have job description or special training

•Theft rep often handle fire contents, although skm requirements are different

• Processors often used as contents specialists

• Requires different set of skills than structure scoping - Customer mindset/interaction - Lack of item description - Salvage not addressei

• Example - wood furniture replaced without considering cleaning or repair

• Lack of direction given to vendor - vendor often cleans/repairs items before the claim rep inspects the loss

• Use of a submitted list of damaged items - No verification of price by adjuster - Limited use of national replacement sources/local sources

Source: T earn analysis or Aeiospection•; interviews; CFR

= = en

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The vast majority of the content inventory is controlled by homeowners.

KEY DRIVERS - INVENTORY

Number of files handled; $ millions; percent

100%= 134 files $130.2

Other 2.5% ····--······--······· 3.2% ··-····--·---·---·· IA/pilot 9.3% 8.0%

············-········· 6.9%

Adjuster 28.0%

Homeowner

• Dollar opportunity in tiles handlacVevalualion of oonlents total payment

Source: 015; team analysis ol the fire CFR

003M7-021sjs/jsffi = c-. :--3 "-.:>

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= = = I

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Percent opportunity*

27.2% 16.6%

8.5%

21.0%

27

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More than 60 percent of the time, replacement cost is determined by non-Allstate resources.

KEY DRIVERS - REPLACEMENT COSTS

Percent

Who determined contents replacement cost

100% = 134 claims

Adjuster

IA, Pilot

Souroe: T earn analysis of lhe fire CFR

~r.l .. •-+O

1.ff$1. Non-Allstate

Homeowner

28

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There are important similarities between contents and structure evaluation issues.

SIMILARITIES BETWEEN CONTENTS AND STRUCTURE

\ssues

• Scoping/inventory descriptions

-Timing

- Clean vs. replace

- Repair vs. replace

• Estimating fundamentals

-PEG

• FRC vs. ACV


• Try to evaluate with one-time visit • Decision to replace items up front leads to incomplete/nonexistent

mitigation

• Decisions made by non-Allstate representative/vendors • Focusing on replacement

• Lack of direction to vendor -Wood furniture replaced without cleaning or repair consideration

• Lumping items • Inconsistent depreciation applied

• Paying FRC upfront

Souroe: Team analysis of reinspect<on; interviews; CFR

29

= = =

= =

=·

H000000824

• Introduction


• Evaluation

~ • Subrogation

003047-02lsjs/j.a-i

30

= = =

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SUBROGATION/RECOVERY

• Subrogation is potentially a very large opportunity in the fire peril

• Key barriers to successful subrogation are

- Limited or no investigation

- lack of identification

- Poor handling by NAVP or law firm

31

= = =

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= =

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H000000826

There is a significant opportunity in subrogation.

SUBRO COLLECTED FIRE {NON-CAT) 1993-1995 AND PROJECTED 1996

$Millions, percent of total loss

-""$0.96 ____

1.5%

1993

• Includes owner, CJR lines

Source: OIS; team analysis of the CFR

$11.31

-----

2.3%

1994

,__ $8.73 --

1.8%

1995

$32.81

6.37%

-----

Projected subro collection 1996

Potential opportunity beyond subro projection -$23 million

Average subro collection - 1 .9% $9.8 million

32

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The primary reason for subrogation opportunity is the lack of attention due to the time-consuming nature of subrogation. Additionally, there is a lack of proper identification and investigation.

'

SUBROGATION - ISSUES

Issues

• Lack of attention in subro

• Subro recovery hampered by' lack of investigation

• Lack of identification


• Time consuming

• Limited C&O investigation - Reliance on adjusters' best call -lack of statement from insured/3rd party - Lack of photos which add value -Minimal use of C&O reports, iire/official reports -Problems with securing evidence (especially contents)

• Poor handling of Investigation by NAVP and law firm -Sofa caught on fire and C&O just stated that "sofa caught on fire,• no

cause listed; insured did not live in house and law firm wrote it ott, although tenants should have been pursued

-Writing off claims caused by appliances > 7 years old -Group cases not addressed

• Example - dryer fire was written off because the dryer was old; however, 2 months prior, Sears had repaired it - never pursued possible link

S-0 urce: T earn analys~ of the CFR; Re inspections; Interviews

33

= = =

= z

H000000828

I

We could do a much better job in investigating claims.

INVESTIGATION EFFECTIVENESS

Percent

1 Other expert reports o.o 0.5

Proof of ownership 3.7

Statement from 3rd party 2.1

Cause and origin report

Fire department report

Previous loss history

Statement from insured

Photos that added value

Source; Team analysis of the CFA

15.3

64.7

66.3

003™7-0llsjs/j.CH

h",£ 1 Was done

D Should have been done

93.7

34

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Appendix

003047,(121.~js/j&Ol

= = =

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ESTIMATING FUNDAMENTALS - SUB-BIOS

Number of tiles;$ millions; percent

Files without sub-bids

Files with sub-bids

185 files

75.1%

24.9%

----

Dollar share of files without sub-bids

_ .... Dollar share

---of files with sub-bids

--$2~1---

Actual amount spent on sub-bids

Source: OIS; team analysis of the fire CFR

$313.8

56.1%

43.9%

Structure evaluation dollars

------

Opportunity share for tiles without sub-bids

------Opportunity share for files with sub-bid

$42.7

56.1%

43.9%

Opportunity ;n structure evaluation

(> • Sub-bids primarily In larger fires • Do not seem to be a dominant

opportunity driver • However, since almost 44% of

both opportunity and dollars spent Involves files with sub-bids, the issue may deserve further analysis

A-1

= = =

= z

2"":

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H000000831

KEY ISSUES - CONTENTS CLEANING VS. REPLACEMENT

$ Millions; percent; number of files

100% ==


Cleaning

$157.5

62.7%

($130.2)

17.3% ($27.3}

Total contents dollars

Source: OlS; team analysis of the fire CFR

Yes

No

134 files

72.4%

27.6%

Was cleaning attempted

37 files

35.1%

! ,. ./

I I

I /

; ' 64.9%

Should have been attempted

A. -3

= = =

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'--=-.J =

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H000000832

LEADERSHIP TEAM AGENDA

• Review team fact gathering plan

- What we are expecting to capture

- Who, where

• Discuss data access/resource issues

• Review/agree on message for Mick

003047-028memCH

1

= = en

= en ._, ts::

H000000833

GOING FORWARD - REFINING THE FACT GATHERING EFFORT

• The CFR scan is proving effective in identifying opportunity and the associated drivers

• However, there are several areas outside the current scan format, (e.g., management time/focus, complaint handling) which warrant closer attention. Furthermore, an initial scan of opportunity in CATs indicates that CATs may in fact represent a substantial proportion of the opportunity

• Therefore,

- Full CFR needs to move forward with some minor adjustments to the current focus, to establish the necessary statistical fact based

- Some additional fact gathering should be done in conjunction with the CFR (to take advantage of the field visits) to provide some important based lines for the design phase

- Finally, a separate team needs to continue to develop a fact-base around CATs and CAT-specific issues

003047--028memCH

2

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003<l47-028memCH

The design team CUR effort can move forward with some minor adjustments.

DESIGN CFR EFFORT

Area

CFR

Interviews

Management ride/sit alongs

Changes/additions

•Adapt form to - Remove/adjust ineffective questions - Eliminate ambiguity - Highlight required fields

• Review file sample mix

• Design more focused interview guides to identify key issues, such as management time allocation, availability/use of training

• Add several half or full days shadowing managers to get specific data on their activities

3

= = en

z .=

H000000835

DESIGN TEAM FACT DEVELOPMENT

Activity

CFR

Reinspections

\j Interviews

RideAlongs

2-Taams 5-People 3-CFR 1 - Reinspeclions

d volume by site

Minimum

Minimum 25 reinspections

All non-CAT CFR and reinspections

2-3 targeted interviews of claim reps

2-3 targeted interviews of MCO managers

Ride along (shadow 2 field claim reps}

Ride along (shadow MCO manager)

1 - Interviews and ride alongs

Time involved

6-7 CFR per day, 3 people

5-7 per day per 1 person

3 per day

3 per day

1 day each

1 day each

0 003M7-021!memCH ""'

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= = en

H000000836

A number of additional issues exist in CAT handling, for which it would be useful to gather fact-based information.

CAT-SPECIFIC HANDLING PRACTICES AND ISSUES

Notification

1. Handling large volume of Incoming calls

Assignment

2. Prioritization/ triage of claims

3. Unique damage assessment processes (e.g., earthquake)

Replacement/ repair

4. Managing the supply chain/ preventing price gouging

6. Applying appropriate resources in light of large and uneven volume

7. Managing Independents-quality, accuracy, and customer service

Subrogation/ SIU

5. Evidence gathering prior losses

003Gl7--02BmemCH

Litigation

= = en

= =

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'~a_._A_g_e_n_t_s_' r_o_ie _____________ ---- ____________ ] , 9. Clean-up/ close-down I c"

s

H000000837

CAT FIELD ACTIVITY

Area to study

1 & 2 Dispatcher/dispatch process

3, 4, Policies and procedures &5

6 & 7 Pilot manager

6 & 7 Team leader

Detail of information

• Assignment distribution • Method of assigning • Selection of adjusters for

territory • Bv size or bv aeoaraohv? • What are they? • Who determines state-specific

rules? • How are policies and

orocedures communicated? • Daily activities • Activities required by Allstate • Interaction with adjusters -

training, quality control • Interaction with Allstate • Daily activities • Interaction with pilot • Interaction with QCRs

Relevance to CCPR

• Does the system get the right assignments into the right hands?

•Are there cross-peril and cross-cat issues to consider?

• How do we best control the communication process?

• Economic impact of position • Missings

•Development of positions to positively impact severity

• Who checks up on the OCR? Who does re-res?

003047--02.lhnemCli

How do we gather

• Sit-alongs

• Interviews • Review of documents

at cat sites • Review of state statlies

• Shadow activity

• Sit-alongs

6

= = en

.. = = . ., s:::

= .=

H000000838

CAT FIELD ACTIVITY (CONTINUED)

Area to study

7 Allstate examiner

7 Pilot adjuster

Detail of Information

• Required activities • Time to complete • What is done when pilot

error(s) are discovered? • Training received • Productivity gauge • Required skills for position

• Assignments received • Required training for position • Instruction received from

Allstate at cat site • Level of supervision required • Level of interaction with Allstate

at cat site • How is estimating feedback

received • Scoping - how done, how

many? • At what interval are estimates

completed? • Customer interaction before,

during, after inspection

Relevance to CCPR

• Measure economic impact of position

• How much can be captured at this level?

•Training missings • Motivation to scope and

complete estimates in a certain pattern

• Perception of the Allstate/pilot relationship

• Customer satisfaction

How do we gather

• Sit-alongs • Interviews

• Sit-alongs • Ride-alongs • Interviews

7

= = =

z -=

=

H000000839

CAT FIELD ACTIVITY (CONTINUED)

7

8

9

Area to study

OCR (Allstate)

Agent role in catastrophe

Supplements

Detail of information

• Daily activities • What do we do with

reinspections? • Job qualifications • Interaction with pilot • Empowerment to take action • Their perception of role • Selection criteria of

reinspections • Procedure for completing

-- - ".:-- - - ~ ~ .. ~ - ·- -

• Interview - discuss perceptions, activities, interaction with claims emplovees. customers

• Supplement notification • Supplement handling process • Supplement checks and

balances (reinspections, reviews, examiner procedures)

• Role of FRC/ACV

Relevance to CCPR

• Economic impact on process ability to effect improvement

• Ways to improve ability to have a quick impact

• Economic impact • Required training

• Do we process supplements exercising cost control?

• Identification of opportunity?

003047--0211memCH

How do we gather

• Ride-alongs • Sit-alongs

• Office visits

• Paperwork review • Examiner sit-along and

interviews • Reinspection of

supplements

8

= = en

.,, ""' = = =: c-, .... = =

H000000840

003047-028memCH

CAT TEAM TIMEIACTIVITY ANALYSIS

Area lo study

Pilot manager

OCR activity

Dispatch process

Team leader

Examiner

Activity

• Shadow activity

• Ride-along -accompanies reinspectlon

•Sit along • Interview • Pilot Interaction • S:v:.min<> ""'""' 1>rlrlt>rl

• Observe process • Review pending and

staffing per site

• Observe activity -shadow

• Sit-along - observe document activity AND

Recommended volume per site

• 2 114-day sessions {4 hours total)

• 50 reinspections (wind/hail sites)

• 25-30 reinspections (rainlwater sites)

• 2 interviews

Time involved -1 person

• 112 days

• 7 days - reinspections • 1 day - inside activity

• 2 1/4-day sessions • 1/2 day

• 1-2 sessions totaling 4 • 1/2 day hours

• 2 8-hour sessions -different examiners OR

• 2 days

• Observe economic • 1 4-hour session activity functions • 2 interviews

• lnfArviAW tn n;:1in in~inht • FiO filA~ minimum

9

= = =

= l=1

""' = = ,__.

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=

H000000841

CAT TEAM TIME/ACTIVITY ANALYSIS (CONT1NUEDI

Points to consider • Surplus time

spent with examiner, re inspections

• What level of pennission do we need from pilot?

Area to study

Pilot adjuster

Policies and procedures

Supplements

Agents

Activity

• Ride-along • Interview • Document observations • Incorporate supplement

detail in interviews. etc. • Gather info on

state-specific handling, coverage variation, regulations, local interpretations -through site leader, Or.R

• Reinspect supplements • Observe examiner's

activity on supplements • Incorporate OCR

interview on suoolements

• Visit agent locations • Conduct interviews • Discuss cat activities

and agent perspective

003().l7--028memCH

Recommended volume per site

• 2 pilot adjusters

Time involved -1 person

• ~-1/2 days

• 2-4 hours total- review • 1/2 day all local detail

• Reinspect 5-7 • Inside activity

• 4 agent locations -attempt to visit sites with team leader or PCPS

• 1 day • 112 day

• 1 day

10

z -=

H000000842

H000000843

HO CCPR REVIEW DECEMBER 13, 1996

H000000844

CONFIDENTIAL

Homeowners CCPR Project Review

ALLSTA1E INSURANCE COMPANY

Review with senior management

December 13, 1996

This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for dis!libution outside the clienl organization without prior written approval from McKinsey &: Company.

•

003047-1130bk/sbpCH = = 0

= = en

=

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= -:i = =-

H000000845

TODAY'S OBJECTIVES

• Summarize activities to date

• Review overall opportunity

• Discuss key finds

- CAT - By peril - Cross-peril issues

• Review next steps

003M7-030bk/sbpCH

1

= = =

=

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= ___, =· -

H000000846

The project is making good progress to date. The team has completed the initial field fact finding and has begun the design phase.


:r·: -.. .. . .-~.: ..

Description •Assemble •Review and • Design •Conduct • Redesign team assess surveys, additional processes

• Conduct existing Interview analyses - Field-based high-level analyses and guides, etc. • Conduct - Focused on financial refine • Arrange for formal debrief, high·doUar analysis hypotheses logistics for establfsh areas

• Plan initial • Identify fact finding priorities, and -Define project additional fact • Train review conduct high- measures phases finding/ teams (as level design and

analysis necessary) measure me required nt approach

• Conduct tests - Reid-based -Heavy

measureme ntfocus

• Develop staffing model

Timing Early August Late August - September October- December - TBD early November September

003047-ll30bk/sbpCH = = ~ ,,_...,

= = = = = <.:n

~

PRELIMINARY

""" I-·:. ·:I Progress ._, ,,,._

to dale z z = ><

""" "" Design and execute roll out

• Codify results · • Design • Determine approach

what • Develop implementatio support n package materials looks like • Schedule - Non· • Train imple-

negotiable meniation - Negotiable teams (as

• Continue to necessary) develop • Execute measurement rollout system z .=

= _., = ,,,._

!""' TBD TBD ,,,._

2

H000000847

Phase 1 of the fact-finding verified that the fire peril needs to be included in the overall design phase, and that CAT handling is also an important area to consider

FIELD FACT~FINDING TEAM FOCUS

Phase 1 {9121to1om

Fire team • Understand impact of fire gap

process • Assess opportunity in gap vs.

nongap sites

Design team • Test fact-gathering tools • Begin gathering CFR fact base

for wind/hail and theft

CAT scan •Take quick look at CAT process • Assess potential for opportunity

in CAT handUng

Interim analysis and debrief (10/17 to 11/1)

• Fire sUll has substantial opportunity and should be included in overall design

• The opportunity potential in CAT deserves closer scrutiny

Phase 2 (11/4to12/6)

Design team • Build complete CFR fact-base • Attempt to build perspective

around "qualitative" issues

CAT team • Build broader fact-base on CAT

claim opportunity • Get clearer perspective on CAT

process, activities, and Allstate/pilot interaction

003Cl47--030bk/sbpCH

3

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= -.;]

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003047-lt30bk/sbpCH = = 0

Each team used a nwnber of mefuods to assess opportunity and the underlying drivers.

FIELD FACT-FINDING ACTIVITIES COMPLETED

CAT team

• 6MC0s • 6 special CAT handling locations

• 451 file reviews

• 267 reinspections

• 88 interviews {management members, pilot members, and adjusters)

• 31 customer interviews

• 23shadows

Fire team

Visited

• 4 fire gap • 4 nongap sites

Conducted



• 32 interviews (management and claim reps)

Design team

• 7 multnine MCOs • 9 specialty MCOs

• 625 file reviews (325 wind/hail, 300 theft)



• 29 shadows

• 66 skill assessments

4

= = = =

= .= = ___, = ..,..

H000000849

The teams found significant opportunity in CAT and non-CAT perils.

OVERALL OPPORTU~ITV IDENTIFIED l/,I ~.~·P 31J-1 ?'W' ,

CAT $Millions

902 /

2

Opp. Percent

Initial REI

Supplement R~cl pt ~ Initial desk reviews

0r~rJ!i?iY 3!J D {fr· v Non-CAT* !)..~ ~ $ Miiiions

100%=

28.7 Wind/ hall

Theft 43.7

13.3 Fire

21.9

837

16

22

62

Total loss Total Total loss opportunity

' Excludes other non-OAT losses including water Source: OIS; closed me revjews; reinspeciions

.................

--···· .. -······

209

15

20

65

Total opportunity

OPP Percent

w/1-1-CFR

w/.H REI

1Ha1-CFR

.f'i~ CF

OOJ047-03Qbk/sbpCH

23.5

'1;'?.1

22.7

26,2

5

H000000850

I I

I

The teams found significant oppo~~ in CAT and non-CAT perils.

\\J\~~~ OVERALL OPPORTUNITY IDENTIFIED~

CAT

\~=--

275

Total loss Total opportunity

1gwatet

Opp. Percent

nitial REI

Initial desk reviews

Supplement desk revlews

Source: OIS; closed iile reviews; reinspectfons

28.7

43.7

13.3

21.9

Non-CAT". $ Mlllions

100%=

Wind/ hail

Theft

Fire

837

134

184

519

Total loss

··----·····

•&<--•-••••••·

... -... --········

208

31

42

135

Total opport~nity

OPP Percent

W/H CFR

W/H REI

Thefl CFR

Fire CFR

OOOCM7..ooobk/sbpCH

23.5

33.7

22.7

26.2

5

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003047-0JObk/sbpCH

While there is variability, opportunity exists across all MCOs vjsited.

OPPORTUNITY ACROSS SITES

Percent

38 39 CAT* 38 31 32 30 24

I I I w

I CAT1 CAT2 CAT3 CAT4 CATS CAT6 CAT7-10 Overall

GAP Non-GAP Non-CAT

33 30 28 22 26 24 26

17

I I I I I l 9 Fire

MC01 MC02 MC03 MC04 MC05 MC06 MC07 MC08 Overall

Theft DD 29 12 19 n

c=JD_ 15 19

oD 11

c:i

27 24

DD 50

37 n D 26 21 23 Do D

MC01 MC02 MC03 MC04 MC05 MC06 MC07 MC08 MCO 9 MCO 10 MCO 11 MCO 12 MCO 13 MCO 14 Overall

WindJhail 42

oDoOOD 14

D

37 D " " .. non 13

D ono MC01 MC02 MC03 MC04 MC05 MCOS MC07 MC08 MC09 MC010MCO11 MC012MCO13 MC014 Overall

• Based on rein$peclions 6

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SUMMARY OF FINDINGS

Area

CATs

Perils •Fire

•Theft

•Wind/hail

Across perils, CAT/Non-CAT

Key findings

• Reinspections revealed opportunity of $275 million • Primary issues Include improper scoping and estimation, timing of estimates, and

coverage determination

•Total opportunity is $135 million • 74% of opportunity is found in tire losses over $15,000 • Largest drivers of opportunity exist in structure and contents evaluation and

subrogation

• Total opportunity is $42 mHlion • Claims over $2,500 represent 74% of opportunity • Largest opportunity areas include evaluation, coverage, and fraud

• CFR Identified almost $32 million opportunity; however, reinspections suggest the opportunity could be as high as $46 million

• Substantial opportunity exists for both Allstate and independent adjusters • Largest opportunity area is roois

• Significant issue overlap exists across perils • Contents and independents appear to be the largest cross-peril issues • The primary underlying causes of opportunity include

- Insufficient training - Little or no cafibra.tion - Inadequate technical/policy skills among management and claim reps - Limited homeowner staffing - Lack of management attention to claim handling - Unclear/ineffective perfonnance measurements

7

= = =

z p

= __,

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H000000853

The largest opportunities across perils exist in evaluation of structure and contents, coverage, and subrogation.


Cat $millions Percent

Fire $millions Percent

Theft $millions Percent)

Wind/hail (non cat) $millions Percent

Overall $millions Percent

Millgation

0 0

5.1 1.0

0 0

0 0

5.1 0.3

. ...:.:.:.:_.;,;; .. --:.:.-~.:.:

Fraud

0 0

0 0

10.4 5.6

0.1 0.1

10.5 0.6

f =':;~-:- :::/:::. -: ''I 1·'· 240.a··= · · '1

Source: CFR; relnspections; OIS; C074 audH; working team analysis

Evaluation (cleaning and ALE)

0 0

14.4 2.8

0 0

0 0

14.4 0.8

0 0

3.1 0.6

0 0

0 0

3.1 0.2

Salvage

0 0

3.1 0.6

0 0

0 0

3.1 0.2

003047-030bk/sbpCH

275.1 30.5

134.8 26.2

42.0 22.7

32.0 23.5

483.9 27.8

8

= = = =

=

H000000854

I !

I I I I I '

Coverage not investigated is a conunon issue across theft, wind/hail, and CATs. It is also the largest driver of coverage opportunity. Other coverage issues are similar across wind/hail and CATs.

COVERAGE


Coverage not investigated V' t/ Other insurance V' Improper policy interpretation II' Multiple losses t/

CATs

00304M30bk/&bpCH

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= = 0

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~

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H000000855

Inconect depreciation/improper use of FRC versus ACV was a common issue across all perils. Improper estimate calculation was common in perils where structural losses occur frequently.

EVALUATION - STRUCTURE

lssue Subissue Fire Theft Wind/hail

Scoping Clean vs. replace V' Alternative repair methods V' Damages not related to loss

Maintenance-related damages

Lack of estimating Improper estimate calculations fundamentals (e.g., improper use of

ACCUPRO)

Incorrect depreciation/FRC vs. ACV

CATs

0031lf7-030bk/sbpCH

,,

10

= = = =

H000000856

In contents evaluation, incorrect depreciation/improper use of FRC versus ACV was again a common issue. Most other issues were shared across fire and theft where contents losses are frequent Contents evaluation is not an issue for wind/hail or CATs.

EVALUATION - CONTENTS

Issue Sublssue Fire Theft Wind/hail

Inventory Accept insured's inventory sheet ~ without verification

Clean vs. repair v-Lack of estimating Accept insured's prices without ~ fundamentals verification

Little or no use of national v-replacement centers

Incorrect depreciation/FRC vs. ti' ACV

CATs

003047-DJObk/sbpCB

11

= = =

H000000857

Most of the issues related to subrogation were common across all perils. Subrogation was more likely to be pursued in fire where losses are often quite large.

SUBROGATION

lssue Fire Theft

Limited or no investigation ti' If' Lack of identification fl' ti' Poor handling by NAVP fl' Not pursued when recognized

Wind/hail CATs

Cl00!147--0301>k/ sbpCH

12

= = = =

z p

= __, = -

H000000858

IMJ3047-030bk/sbpCli

Our findings matched our original hypotheses about contents/replacement and independents. We found less use of QVPs than we expected.

CROSS-PERIL HYPOTHESES

Issue

Contents/ replacement programs

Independents

QVP

Original hypotheses

• Segmentation of structure and contents may be the most effective handling method

• Replacement activity is below needed levels

• Can impact severity positively if used properly

• Heavily used in field due to inadequate staffing

• Major driver of cross-peril opportunity

• Frequently not managed

• QVP negatively impacts severity

• Role of QVP may not be clearly defined in the field

What we found

• The insured routinely priced and submitted the contents inventory

• Some adjusters handle both the structural and contents portion of losses. It appears that this method of handling does not provide the best severity control

• Replacement activity is relatively low • General lack of knowledge of available replacement

resources • The carpet replacement evaluation process appears

to take too long • Contents receiving secondary priority

• Confirmed hypotheses in a number of locations • Replaced QVPs in the adjusting force • Represent significant economic opportunity • Receive nttle or no Allstate supervision • Heavily represented by Pilot adjusters

• QVPs were not widely used in wind/hail and theft losses

• Were a driver of opportunity in fire, mostly in the evaluation of large structural losses

13

= = = = = _, ~

z p

= _, = -

H000000859

0030i7-03Cbk/sbpCH = = 0

The team identified a handful of contributing potential causes of opportunity which consistently surfaced across perils as well as across CAT and non-CAT. The creation of the NCMT is an effective first step in beginning to address a number of these issues.

UNDERLYING CAUSES OF OPPORTUNITY

Area

Training

Skill levels

Management time/focus

Description

Non-CAT CAT

• Training given secondary priority • Training needed on policy/coverage and • Little or no ongoing skilVpolicy training customer Interaction skills • Training curriculum not updated

frequently

• Management tenure low • Technical and poUcy skills insufficient

for both managers and claim reps

• In some cases, scope of management focus is too broad to be effective

• Focus on administrative tasks and customer interaction

• Extremely limited time for coaching, reinspections, and ride alongs

• Reinspections primarily completed to fulfill require men ts

• No certification process to ensure we are receiving skilled adjusters/staff

• Definition of management roles still in development

• Varying duties at CATs sites prevent QCR's and file examiners from performing early and frequent reinspections

• Emphasis taken away from QCR function during clean-up phase

14

= = en

H000000860

UNDERLYING CAUSES OF OPPORTUNITY (CONTINUED)

Area

Staffing

Calibration/ conslstent procedures

Measurements

Description

Non-CAT

• Resources dedicated to Auto, casualty, and water - Homeowners given last priority

• Significant number of open J58s

• Limited or no understanding of calibration process

• There is mixed focus on key performance measurements

• There is a "disconnect" in communication to the front line

• Frequently do not promote desired behavior

003Cl47-030bk/sbpCH

CAT

• Insufficient staffing to adequately reinspect adjusters

• Examiners/QCRs perform same task differently from site to site

• Scope and estimate components vary within and across sites

• Level of CAT preparation varies by CSA

• Measurements of closures and pending shifts focus from quality closures to rapid closures

15

= = 0

= = = =

> = = = ><

= p

= _, = ..,..

H000000861

NEXT STEPS

OQ31147-030bk/sbpCH

The team will spend the next 3 weeks preparing for the set of field tests.

Develop Implementation package


----Develop comprehensive solution and Implementation plans

Debrief and pull together independent solutions into comprehensive answer

• Develop first-cut implementation transfer plan

TBD

~..._..._._ --Conduct 2nd pass field test (transportability)

• Test viability of overall solution

• Refine implemenlation process and package

•Test transportability of solution

TBD 16

= = =>

= = = ~

=

H000000862

There are a few issues moving forward.

KEY ISSUES MOVING FORWARD

• Success of project depends on team stability/continuity

• Coordination of schedules with Auto PD second look/rollout and managing "field fatigue"

• Depletion of Homeowners skilled resources through redeployment into other units

• Timing of filling existing J58s in property

000047-000bk/sbpCH

17

= = = = = = ~

= .= = __, = -·"' =

H000000863

G12-7

HOMEOWNERS CCPR PROJECT REVIEW MANAGEMENT SKILL ASSESSMENT

CSA TECH TRN ORAL

#1 1.5 1.5 1.7

#2 2.2 2.3 2.5

#3 1.5 1.5 1.7

#4 2.2 2.4 2.2

#5 2.3 1.9 2.0

#6 2.5 2.3 2.1

TOTAL 2.1 2.0 2.0

SKILL LEVEL ASSESSMEtfl': LEVELS I THRU 3 TECH-TECHNICAL SKI!LS TRN-TRAINING AND DEVELOPMENl\COAclllNG oRAL-OlW. COMMUN!CA TION slOLLs WRIT'-WRfITEN coMMUN!cATioN SKILLS LOR-LEADERSHIP SKI!LS POLICY -POLICY INTERPRETATION SKILLS COMP'R-COMPUTER (LAPTOP) UTILIZATION SKILLS

WRIT'

1.8

2.3

1.7

1.8

1.9

1.9

1.9

ORG' LDR POLICY COMP'R TOTAL

2.0 1.4 1.8 1.5 9

2.3 2.5 --- -- 10

1.7 1.6 1.7 1.2 13

2.2 1.8 2.0 -- 8

2.2 2.0 2.1 -""' 10

1.9 1.8 2.2 ~ 19

2.0 1.8 2.0 1.3 66

Allstate~ You're in good hands.

H000000864

Appendix A: CATs

003047-030.Ad>/ memOi

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= = = = = co

~

z p

= _, = -·"' "" =

H000000865

,.

KEY DRIVERS OF CAT OPPORTUNITY

Issues

Scoping


Timing

Coverage

Description

• Alternative repair methods do not receive sufficient consideration

• Roof replacement is too often standard vs. repair • Fences written to replace vs. repair • Excessive allowance for tree and debris removal

• Writing damage where none exists • Inappropriate use of unit costs • Multiple minimum charges on same estimate for

same or similar trades •Lump sums • Little or no verification of paid bills

• Adjusters do not immediately complete estimate after initial scope and inspection (up to 2 weeks)

• Errors due to time and memory lapses

• Coverage analysts errors • Multiple losses/old damage treated as one loss • Tree/debris removal coverages and limitations

misstated

003047-<1311.Acb/memCH

PRELIMINARY

A-1

= = .C>

= = = = = = ~

z .= = -" = .....

H000000866

OVERALL OPPORTUNITY IN CAT HANDLING

$Millions

5-year average

3-year average

1996 estimate actual

Note: Assumes reinspeclion opportunity of 30.5% and desk review opportunity of 15.4 Source: 015, CFR; relnspections; working team analysis

0034l47..0JO.Acb/memCH

D Reinspectlons

CJ Desk revlews

A-2

= = en

= = = ~

H000000867

CAT OPPORTUNITY BY DAMAGE AREA

$ Millions; percent

100% =275 ·~-~

52

-----~L __ [~L ____ r:::-i ~

Total Roofs

Source: OIS; reins~ctions

Exterior dwelling

Other exterior

........ 1 7

Debris Interior

I ··--···1

removal dwelling

6 L ...... Fence

0030<17--030.A<:b/ memCH

II

Garage Contents

A.-3

= = = = = = ~

z p

= __, = .....

H000000868

Appendix B: Fires

000047-030.Acb I mema-J

A-4

= = = =

H000000869

KEY DRIVERS OF FIRE OPPORTUNITY

Issues Description

Structure evaluation • Writing unseen damages without follow up • Focus on replacement vs. cleaning/repair • Lack of understanding of skills for ACCUPRO estimation • Lump sum estimates • Paying full replacement costs instead of ACV

Contents evaluation • Minimal or no Allstate involvement in inventory of contents • Focus on replacement vs. cleaningfrepair • Replacement cost not verified

Subrogation • Cause and origin not properly determined • Subro potential not identifled • Poor handling by NAVP or law firm

0()3047-{)30.Acb I memCH

A-5

= = .c->

= = en

= = ~

= . !='

= -.:I

= --

H000000870

OPPORTUNITIES BY SIZE OF LOSS*

$ Millions; percent

100%= 20,650* $515.4 134.9 ..-------.-------···--·-----~---····-··---..------..

Major loss >$15,000

Medium loss $2,500-15,000

SmaU loss <$2,500

20.5%

30.0 \ \\ 72.6

$99.5 {73.9%)

1------1\ \ \ \

' \ \ \'1.------1---··-···-·-+------1

49.5 "\ 26.8

Percentage of claims by size of loss

\ 21 .4 (19.9) ·1----,,.-.,,..----1--~---+---:--:,.....-,=-=,.-I

-~n 8.4 lS.21 Total dollars Opportunity paid by dollars by size of loss size of loss

• Based on 7 CSA audit Source: OIS, C74Audil ol CSA Rle Distribution by Loss Size

003047-ll30.Ad>/mm.CH

A-6

= = = = = = ~

H000000871

EVALUATION AND SUBROGATION OPPORTUNlTlES BY SIZE Of LOSS $ Millions; percent

100% = $134.9

Major fire (+$15,000}

Medium fire ($2,500-15,000)

Minor fire

73.9%

19.9

6.2

Total opportunity by size of loss

Sowce: CFR OIS; working team analysis

·--···---

-··-····-

......... _ ..

42.73

75.5

19.9

'---4_5-

Evaluation of structure opportunity

_____ ...

\ \. '\. ---......

26.03 32.83 .. ..,. ___ .. _

81.3 95.2

/ 14.4 34- --·- -1.4; . - __ ... - 4.3_

Evaluation of contents opportunity

Subrogation opportunity

003047.mo.Acb/memCH

A-7

= = en

=

'2:: p

= _, = -

H000000872

Appendix C: Theft

OOW47-030.Acb/memCH = .,., 0

= = =

" =

A-8

= = ~

H000000873

\~

00lll47.030.Ad>/mem0l = ""' ~

= = = = = = :-a::

KEY DRIVERS OF THEFT OPPORTUNITY

Issues

Coverage


Fraud

Subrogation

Description

• Coverage analysis not addressed • Lack of investigation for additional coverage/insurance

• Incorrect or no application of depreciation • FRC paid prior to replacement • Incorrect pricing • lnsured's inventory sheets accepted without verification

• lack ot fraud investigation when fraud indicators are present (little evidence adjusters recognize fraud)

• Little or no recognition at subro potential • Opportunity not pursued when recognized

A-9

H000000874

OVERALL THEFT OPPORTUNITY $ Millions; percent

100%=

$5,000+

2,501-5,000

1,001-2,500

100-1,000

185.5

34

25

27

14


• Based on C074 audit of 5 CSAs

---·-··--

"-., ........ ,

........

"·, "--,

-··---·--..... ___

Source: CFR acan; OIS; C074 audit; working team analysis

0

42.0

53

25

14

8 Opportunity

C000"'7-031J.Ad>/memCH = ""' !C'

I 23% opportunity I

A-10

= = =

=

= p

= __, = .....

H000000875

Appendix D: Wind/hail

003047-030.Acb/memCH = t=l p

(l

A-11

= = = =

= p

= __., = -

H000000876

I I

I

0031147--0311.Acb/men\CH = = 0

KEY DRIVERS OF WIND/HAIL OPPORTUNITY

Issues

Coverage

Scoping


Description

• Policy interpreted improperly • Multiple losses covered as single loss • Coverage analysis not addressed

• Damages included in scope which were not related to loss • Maintenance-related damages not distinguished from sudden

and accidental losses

• Incorrect or no application of depreciation • Improper estimate calculatlon (including improper use of

ACCUPRO)

A-12

<= <= en

=

H000000877

,,

OVERALL NON·CAT WIND/HAIL OPPORTUNITY FROM CFR VS. FROM REINSPECTIONS

CFR

Overall opportunity Percent

23.5

I I l I Reinspections 33.7 I

L---1 ... ~ 43.4% increase

Source: CFR; Field ReinspecHons; WOJking learn analysis

Overall opportunity $Millions

32.0

45.9

003047-WO.Ad>/ memCH

A-13

= = = =

H000000878

003047-030.Acb/memCH

Ii

= = en

=

WIND/HAIL OPPORTUNITY FROM CFR AND RElNSPECTIONS BY PRIMARY CLAIM HANDLER*

Percent

A!lstata

Paid losses handled Percent

':'. ~ -·'.::'\':>('.\.,;;!\~::~>< 56

Opportunity

! ·:.

::'.:; :;!:;:/ 26

49 32

Independents 51

• Primaiy claim handler is delined as the person who handles lhe evaluation step ol the claim

Source: CFR scan; Field Relnspections; working team analysis

36

D CFR scan results

D Reinspection results

A-14

. _23 = __, = -·"'

H000000879

WINDJHA\L OPPORTUNITY BY DAMAGE AREA

$ mlllions; percent

100% = $46MM* --.--....

57

···0 ....... 191 ~--.. ·1 8 L.

0034J47-030.Acb/memCH

. I '

J = 0

~

= = = =

I

~6<---IL-c4::J .___.....i----------------------------·-=c==2 ==i.. ...•.. 1~

Contents Other exterior

Debris removal

Garage Total Roofs Exterior

dwelling

• Based on relnspection results only

Source: OIS; relnspectlons; working learn analysis

Interior dwelling

Fences

A-15

H000000880

H000000881

HOMEOWNER CCPR REVIEW DECEMBER 19, 1996

H000000882

CONFIDENTIA T,

Homeowners CCPR Review


Team debrief

December 19, 1996

This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company.

003047-035memCH

H000000883

TODAY'S OBJECTIVES


• Discuss key findings

- Cat

- By peril

- Qualitative observa•':ms

• Discuss potential solution components and next steps

003047-035memCH

1

H000000884

TODAY'S OBJECTIVES

~ • Summarize activities to date


- Cat

- By peril

- Qualitative observations


003047-035memCH

2

H000000885

The project is making good progress to date. The team has completed the initial field fact finding and has begun the design phase.


Description •Assemble • Review and • Design • Conduct • Redesign team assess surveys, additional processes

• Conduct existing interview analyses - Field-based high-level analyses and guides, etc. • Conduct - Focused on financial refine • Arrange for formal debrief, high-dollar analysis hypotheses logistics for establish areas

• Plan initial • Identify fact finding priorities, and - Define project additional fact • Train review conduct high- measures phases finding/ teams (as level design and

analysis necessary) measure me required nt approach

• Conduct tests - Field-based - Heavy

measure-mentfocus

• Develop staffing model

Timing Early August Late August - September October - December - TBD early November September

Develop implementation package

• Codify results • Determine

what implementation package looks like - Non

negotiable - Negotiable

• Continue to develop measurement system

TBD

003047-035memCH

PRELIMINARY

b :'' ,:: I Progress to date


• Design approach

• Develop support materials

• Schedule • Train imple

mentation teams (as necessary)

• Execute rollout

TBD

3

H000000886

Phase 1 of the fact-finding verified that the fire peril needs to be included in the overall design phase, and that Cat handling is also an important area to consider.

FIELD FACT-FINDING TEAM FOCUS

Phase 1 (9/21 to 1 on)

Design team Q 1 • Test fact-gathering tools • Begin gathering CFR fact base

for wind/hail and theft

Cat scan • Take quick look at Cat process • Assess potential for opportunity

in Cat handling

Interim analysis and debrief (10/17 to 11/1)

• Fire still has substantial opportunity and should be included in overall design

• The opportunity potential in Cat deserves closer scrutiny

Phase 2 (11/4 to 12/6)

Design team • Build complete CFR fact-base • Attempt to build perspective

around "qualitative" issues

Cat team • Build broader fact-base on Cat

claim opportunity • Get clearer perspective on Cat

process, activities, and Allstate/pilot interaction

003047-035memCH

4

H000000887

003047-035memCH

Each team used a number of methods to assess opportunity and the underlying drivers.

FIELD FACT-FINDING ACTIVITIES COMPLETED

Cat team

• 6 MCOs • 6 special Cat handling locations



• 88 interviews (management members, pilot members, and adjusters)

• 31 customer interviews

• 23 shadows

,,, I ":

\

Fire team

Visited

• 4 fire gap • 4 nongap sites

Conducted




Design team

• 7 multiline MCOs • 9 specialty MCOs

• 625 file reviews (325 wind/hail, 300 theft)



• 29 shadows

• 66 skill assessments

5

H000000888

TODAY'S OBJECTIVES


• Discuss key findings q -Cat - By peril

- Qualitative observa•'ons


003047-035memCH

6

H000000889

SUMMARY OF CAT QUANTITATIVE FINDINGS

Key findings from initial scan

• Opportunity was 33.2% from reinspections with a $302 million opportunity

• Early hypothesis was that there was significant opportunity in roofs

• 78% of the opportunity dollars was in the process step of evaluation

• Coverage represents 22% of the opportunity dollars

003047-035memCH

Updated findings from desk reviews, reinspections and supplements

• Consistent results with a 30.5% overall opportunity representing $275 million

• Major opportunity was quantified in roofs and building exteriors, with lesser opportunities in debris and fences

• Additional reinspections showed an increase in evaluation opportunity to 87% with estimation practices being the major driver

• Opportunity in coverage decreased to 13%

• Wind and hail is the largest peril driver of Cat claims paid, accounting for 42% over the last 4 years

7

H000000890

Further reinspections confirm an overall opportunity of 30.5%. When applied to the total base of Cat dollars paid in 1996, this is a potential $275 million opportunity.

OVERALL CAT OPPORTUNITY IDENTIFICATION

Opportunity $Millions

902

275

Opportunity Percent

Overall REI

REI

Supplement REI

Overall desk

130.5

129.0

I 15.4

139 Desk review I 13.0

Total loss 1996 p

Total opportunity REI

Source: Field reinspections; desk reviews

I I Total opportunity desk reviews

Supplement desk review 121.9

003047-0JSmemCH

I 43.8

8

H000000891

Wind and hail account for 42 percent of Cat dollars paid over the last four years. This number increases to 63 percent if earthquakes are removed.

CATASTROPHE PAID LOSS*

$ Millions; percent

1996

Total property •• Team estimate

Source: OIS

3-year average 1994-96

4-year average 1993-96

003047-035memCH

9

H000000892

The economic opportunity in Cat is applicable to both wind and hail (>25 percent), although wind appears slightly higher.

ECONOMIC OPPORTUNITY - WIND VS. HAIL

REls Percent

100% = 267 reinspections

Opportunity

Number of reinspections

32.4

Wind

185

• Other - all perils: wind, hail, water Source: Field reinspections

32.5

26.4

Hail Other*

70 12

003047-035memCH

10

H000000893

The economic opportunity is fairly consistent across different wind and hail sties (the two large outliers may have been affected by a small sample size of reinspections).

ECONOMIC OPPORTUNITY BY CAT SITE

Percent

Opportunity 64.4 -

44.2 - 38.4 36.1

32.3 - 34.6 31.2 - ---

19.1 20.4 --

Location 1 2 3 4 5 6 7 8 9

24.2 -

10

Wind Hail Other

Number of 109 40 24 8 4 6 18 46 8 4 reinspections

. Other - all perils: wind, hail, water

Source: Field reinspections

003047..Q35memCH

11

H000000894

Roofs and exteriors account for 76 percent of opportunity dollars and 68 percent of exceptions.

CAT OPPORTUNITY BY DAMAGE AREA AND FREQUENCY OF EXCEPTION

Percent

Total = 30.5% overall Cat opportunity Total = 517 exceptions

Contents Garage Fence Interior dwelling

Debris removal

Other exterior

1-----------t

11

Exterior damage 13

Roof 52

·································· 1----------1

······································· 10 1---------1

...................................... +--___ a ___ -1

34

Opportunity by damage area Frequency

Source: Combined field reinspection

003047-035memCH

12

H000000895

Capturing the Wind Cat opportunity may involve more damage areas than hail, which is driven almost entirely by roofs and exteriors.

OPPORTUNITY DOLLARS BY TYPE OF PROPERTY DAMAGE

Percent

Garage Fence Interior

Debris

Exterior dwelling

Roof

25.6 // t--------1·

48.2

Wind

Source: Field reinspections of 2 wind and 2 hail sites

72.2

Hail

• Roof damage accounts for almost 3/4 of hail damage opportunity

• Debris removal is not an issue in Hail

• Wind Cats involve more damage areas such as fence, debris, and interiors

003047-035memCH

13

H000000896

The opportunity in Cat is predominantly in the evaluation process step with some opportunity also in coverage.

CAT OPPORTUNITY BY PROCESS STEPS

Percent; $ millions

Mitigation

Reinspections

Opportunity 0 34 ($ millions)

Opportunity (%) 0 3.8

Fraud

y ~}ll 241

4 vf\\l\, 26.7

003047-035memCH

~YLM 275

-6 vR \Cl 30.5

14

H000000897

003047-035memCH

The drivers of opportunity in evaluation revolve mostly around technical estimating skills.

DRIVERS OF OPPORTUNITY IN EVALUATION

Percent

100% = $241 million

Alternative method of repair and repair 36 vs. replace a.;;::;==__;,__;,=====~

No damage

Measurement

Debris. removal

Depreciation 7

Material cost 6

Other exceptions 14


Examples

• Replaced spot-damaged roof • Two roof slopes replaced instead of one • Fence could have been repaired instead of replaced

l<~~I Technical estimating skills

• Paid for nonexistent damage - nail marks and weathering • Replaced undamaged gutters

• Incorrect measurements for siding replacement

• Paid for total debris removal of tree bill instead of only to remove from damaged property

• Depreciation not taken for roof replacement

• Paid for upgrade on roofing material • Wrong pricing on siding and gutters

• Paid OH+P when not due

15

H000000898

003047-035memCH

The primary issue in coverage is when old damage is covered.

DRIVERS OF OPPORTUNITY IN COVERAGE

Percent

100% = $34 million Examples

• Paid for roof with old hail damage Old damage 56 • Paid for fences that were rotted and deteriorated

Coverage application

ACVvs. FRC

Deductible

Multiple losses

-7

I-

I-

7

--

7

Source: Combined reinspections

23

• Paid for prior water damages to carpet • Paid for fogged thermopane windows

• Paid for tree debris removal when covered property was not damaged

• Paid for nonowned property (fence belonging to school)

• FRC was paid on a jungle gym

• Lump sum temporary repairs paid to cover deductible

• Paid for minor roof repair to home, but also paid for $10,000 bathroom and interior remodel on same claim

16

H000000899

TODAY'S OBJECTIVES



- Cat

- By peril



003047-035memCH

17

H000000900

SUMMARY OF NON-CAT QUANTITATIVE FINDINGS

Area

Theft

Wind/hail

Key findings presented in last review

•Total opportunity $42 million

• Claims over $2,500 represent 75% of opportunity

• Largest opportunity areas are evaluation, fraud, and coverage

• Total opportunity $39 million

• Reinspection indicated potential $65 million opportunity

• Substantial opportunity for both Allstate (23%) and independent adjusters (24%)

• Largest opportunity areas are coverage and evaluation

003047-035memCH

Additional findings based on larger CFR base

• Total opportunity unchanged

• Finding essentially unchanged - number has moved slightly to 78%

• Finding unchanged • No significant difference in opportunity for specialty

and multiline MCOs

• Opportunity now estimated at $32 million with most of the revisions in coverage and evaluation

• Reinspection indicated opportunity of $46 million

• Finding unchanged, though opportunity numbers have moved slightly to 26% for Allstate and 21% for independents

• Finding unchanged • 57% of the reinspection opportunity is in roofs • Significant opportunity in both specialty and

multiline organizations

Fire • Overall opportunity $135 million • Additional CFRs and reinspections not conducted • 3/4 of overall opportunity is in fires larger than

$15,000 (major fires) • By process steps, evaluation (structure and contents)

and subrogation drive 75% of the overall opportunity

Source: CFRs and reinspections; team analysis 18

H000000901

003047-035memCH

Closed file reviews indicate an opportunity of $42 million and $32 million in theft and wind/hail respectively, with 78 percent of the theft opportunity being in claims over $2500.

OVERALL NON-CAT WIND/HAIL AND THEFT OPPORTUNITY

$ Millions; percent

Theft Wind/hail (non-Cat)

100% = 185.5 42.0 100% = 136.1 32.0

$5,000+

2,501-5,000

1,001-2,500

100-1,000

34

52.9

25 · ...................... .

·1-------1

27 ........................

1--------l

25.5

14 ················· 13.7

1-------1 7.8

Total paid loss and allocated

Opportunity

expenses

~ 22.7% opportunity I

Source: CFAs; Team analysis

$2,501+

1,501-2,500

751-1,500

100-750

42 49.6

·············•··· +------1

26 23.2

················ +------1 19

18.8

13 ················t------1


8.4 Opportunity

~ I

23.5% opportunity 1

19

H000000902

CFRs indicate an opportunity of $135 million in fire claims, with the bulk of the opportunity in large fires.

FIRE OPPORTUNITY BY SIZE OF LOSS*

Percent

100% = 20,650* claims $515.4 million $134.9 million r------.·· .. ················r-------.····················..--------...

Major loss >$15,000

Medium loss $2,500-15,000

Small loss <$2,500

Based on 7 CSA audit

20.5%

30.0

49.5

Number of claims by size of loss

72.6 $99.5

(73.9%) \ \\ \ .. \.. 1------+····················+--------1

"\. 26.8 \ 21.4 \.. (19.9)

i----,,-,,,...---t····················+---,,......,.--...,-,.,...-1 Ro 8.4 <6.2l

Total dollars Opportunity paid by dollars by size of loss size of loss

Source: OIS, C74 Audit of CSA File Distribution by Loss Size

003047-035memCH

20

H000000903

Wind/hail reinspections indicate that the opportunity could be 44 percent higher than indicated by closed file reviews.

OVERALL NON-CAT WIND/HAIL OPPORTUNITY FROM CFR VS. FROM REINSPECTIONS

CFR

Reinspections

Overall opportunity Percent

23.5

I I I I 33.7 I

'-----~~ 43.4% Increase

Note: Previous increase was 71 % Source: CFR; Field Reinspections; working team analysis

Overall opportunity $Millions

32.0

45.9

003047-035memCH

21

H000000904

003047-035memCH

Although there is variability, significant opportunity exists across all MCOs.

OPPORTUNITY ACROSS SITES l;wm1q Fire gap sites

Percent

Wind/hail CFRs Wind/hail reinspections Theft CFRs Fire CFRs

MC02 56 40 MC08 29 MC05 73 MC06

MC04 19 MCO 13 40 21 MC03 63 MC014 24 50 MC09 74 MCO 1

MCO 11 37 MC07 24 MCO 12 38 MC010

Overall 34 .._____.26

Source: CFRs and field reinspections; working team analysis

22

H000000905

Both multiline and specialty MCOs present significant opportunity.

OPPORTUNITY IN MULTILINE AND SPECIAL TY MCOs

Percent

Theft claims

21

Multiline

Wind/hail claims 29

Multiline

Source: CFRs; team analysis

25

Specialty

22

Specialty

003047-035memCH

Both perils

24 23

Multiline Specialty

23

H000000906

Roofs only account for a third of the exceptions found, but nearly 60 percent of the opportunity.

WIND/HAIL OPPORTUNITY BY DAMAGE AREA*

$ Millions; percent

100%= Contents

$46 million 376 exceptions

g:~~~ere_m_o_v-ed-:--==e== 1 ~2 ===t:=:::::::::::::::::::::::::::::i== 2 =22===i Other exterior 6 ·············'················· 8 i---------+ r--~~~~---1 Fences a ································ 7

Interior dwelling 1-----9----+··························· ..... :=======8======= Exterior dwelling

Roofs 57

Value of opportunity

• Based on reinspection results only

Source: Reinspections; working team analysis

34

Frequency of exceptions

003047-035memCH

24

H000000907

CFRs and reinspections both indicate similar opportunities in wind/hail for Allstate and independent adjusters.

003047-035memCH

WIND/HAIL OPPORTUNITY FROM CFR AND REINSPECTIONS BY PRIMARY CLAIM HANDLER*

Percent

Allstate

Independents

Paid losses handled Percent Opportunity

56

51

• Primary claim handler is defined as the person who handles the evaluation step of the claim

Source: CFR scan; Field Reinspections; working team analysis

38

l>P·~< I CFR scan results

CJ Reinspection results

25

H000000908

003047-035memCH

Specifically in roofs, reinspections showed that independent adjusters accounted for over 60 percent of the opportunity although handling just a third of the claims.

ROOF OPPORTUNITY BY METHOD OF INSPECTION

Percent

Total opportunity in wind/hail ----------------------, 100% = $46 million ------ I

I I I I I I I I I I I I I I I

Other opportunity 43

----r-~ --------

Roof opportunity

32.0

Allstate 58.0

t------1 I 61.0

Independent 36.0

.......... I ................. QVP 5 R 7.0 I

....... I ....... ..... ..... ..... ..... Method of Share of

1 ..... ..... inspection opportunity 1

...................... I ............ .._ ________________ !


26

H000000909

The evaluation process step accounts for the largest component of opportunity across all three perils.

OPPORTUNITY BY PROCESS STEP

Theft

•$Millions

• Percent

Wind/hail Non-Cat

•$Millions

• Percent

Fire

•$Millions

•Percent

All other steps*

11.3

2.2

Coverage

9.4

5.1

9.0

6.6

3.7

0.7

* Mitigation, negotiation and salvage recovery

Fraud

10.4 16.1

5.6 8.7

0.1 21.2

0.1 16.1

0 87:1**

0 16.9

** Evaluation of structure, structure cleaning, carpet, contents cleaning, contents, and ALE


003047-035memCH

Total

6.1 42.0

3.3 22.7

1.0 32.0

0.7 23.5

32.8 134.9

6.4 26.2

27

H000000910

003047-035memCH

The primary driver of both theft and wind/hail coverage opportunity is failure to analyze coverage.

COVERAGE OPPORTUNITY

Peril Key drivers/issues Description/example

Theft • Coverage analysis not addressed • Coverage issues ignored (e.g., single female living

• Other insurance

alone reports 3-4 men's suits were stolen from her house, no attempt to verify ownership)

• Paid for dwelling loss with no indication of damage

• Lack of investigation for additional coverage

Wind/hail • Coverage analysis not addressed • All damages covered

• Improper policy interpretation

• Multiple losses

Source: CFRs and reinspections; team analysis

• No consideration of coverage issues

• Policy settlement options not properly applied (e.g., $2,500 FRC option)

• Misapplication of sudden and accidental (e.g., roof leaked various times, damaging drywall; interior loss covered, despite not being sudden and accidental)

• Loss not reported promptly, but covered • Exclusions and conditions (e.g., insured's obligation

to protect property) often not applied

• Roof damaged by various hailstorms; all losses covered under same claim

28

H000000911

003047-035memCH

Fraud opportunity is driven by failure to investigate when fraud indicators exist in a file.

FRAUD OPPORTUNITY

Peril

Theft

Key drivers/issues

• Lack of fraud investigation when fraud indicators are present

Source: CFRs and reinspections; team analysis

Description/example

• Little evidence that adjusters recognized fraud indicators

• Theft specialists often not supported by management when referring file to SIU (e.g., on one occasion when fraud indicators were present, the UCM told the claims adjuster that the SIU was too busy for new transfers)

• SIU guidelines discourage transfer of files • SIU guidelines inconsistent across CSAs

29

H000000912

003047-035mem/jhdCH

Incorrect or no application of depreciation and poor repair vs. replace decisions drive opportunity in thefts, wind/hail, and fire (structure). In fire (contents) opportunity is driven by poor Allstate involvement in inventory of contents, and focus on replacement instead of cleaning or repair.

EVALUATION OPPORTUNITY

Peril Key drivers/issues Description/example

Theft - contents • Incorrect or no application of depreciation • .I.Jo depreciation applied to 5-year-old microwave

Wind/hailstructure

Fire

• Incorrect pricing • lnsured's inventory sheet price accepted without verification

• No investigation • Claim rep made payment of $9,000 1 week after initial contact. There was no evidence of investigation in the file diary

• Incorrect or no application of depreciation • 15-year-old roof depreciated only 10%

• Damages not related to loss

• Maintenance-related damages/repair

• Improper estimate calculation (including improper use of ACCUPRO)

• Multiple losses not identified

• Structure evaluation

• Contents evaluation

• Tree fell on 1 side of house; damage on other side of house included in estimate and payment

• Roof replaced because it is worn out

• Incorrect/improper application of labor rate, overhead and profit, etc. • Addition errors • Most adjusters inadequately trained to use ACCUPRO correctly • Adjuster retyped contractor estimate directly into ACCUPRO, causing double

counting of labor, overhead, and profit

• Inconsistent pricing/application of minimum charges

• Writing unseen damages without follow-up • Focus on replacement vs. cleaning or repair • Lack of understanding of ACCUPRO for estimation • Lump sum estimate • Paying FRC vs. ACV

• Minimal or no Allstate involvement in inventory of contents • Focus on replacement vs. cleaning or repairs • Replacement cost not verified

Source: CFRs and reinspeclions; team analysis 30

H000000913

CFRs show that depreciation and inventory /pricing drive theft opportunity while scoping/estimation and FRC vs. ACV drive wind/hail opportunity.

DISTRIBUTION OF EVALUATION OPPORTUNITY

Percent

Theft contents Percent

Inventory

Pricing

FRC vs. ACV

Depreciation

Other

Source: CFRs; team analysis

15

~J

10

36

15

Wind/hail structure Percent

Scoping

Estimation

FRCvs. ACV

Other 8

003047-03SmemCH

2 9

32

31

31

H000000914

003047-035memCH

In theft, subrogation opportunity is driven by the failure to recognize and pursue potential. In fire, inadequate investigation prevents subrogation from taking place.

SUBROGATION OPPORTUNITY

$Millions

Peril

Theft

Fire

Key drivers/issues

• Lack of recognition

• Opportunities not pursued

• Lack of investigation

Description/example

• Diary occasionally stated that there was not subro opportunity even though claim rep had not spoken to insured

• Subro template checked off without actually examining subro potential

• In interviews, claim reps admitted they ignore subro opportunity because they do not have time to pursue it

• No follow-up/investigation of potential perpetrators, e.g., - Moving company "stole" items, no one followed up with moving

company - Diary stated that suspects were caught and convicted, but adjuster

made no attempt to follow up with police or courts • Difficulties in recovery ·

- Perpetrator in jail or has no money - Slow restitution ($16/month on a $2,000 claim)

•Limited C&O trives~~i~ 4 QQ_~ 3 if\ - Reliance on adjuster's best call - Lack of photos and statements which add value ~ - Minimal use and understanding of C&O'reports an fire/official

reports • Poor handling of investigation by NAVP and law firm, e.g.,

- Sofa caught fire and C&O just stated "Sofa caught fire" - no cause listed; also insured did not live in house and law firm wrote off

Source: CFRs and reinspections; team analysis 32

H000000915

TODAY'S OBJECTIVES



- Cat

- By peril



003047-035memCH

33

H000000916

SUMMARY OF QUALITATIVE FINDINGS

• As a result of Allstate measurements and incentives, adjusters believe they have 2 main objectives: close claims rapidly and minimize customer service complaints. These objectives do not promote desired behavior

• Beyond measurements and incentives, we observed a number of themes that consistently prevented staff and management from obtaining optimum quality control and customer service for both Cat and non-Cat

• In addition, we observed organizational best practices in some non-Cat MCOs

003047..Q35memCH

34

H000000917

PRIMARY ADJUSTER OBJECTIVES

We asked Cat and non-Cat personnel how they defined a successful operation

Cat

• I don't know what we're measured on, but I think what's important is closures and avoiding customer complaints

-Allstate

• Allstate is putting an emphasis on quantity of closures and not necessarily the quality

-Pilot

• What Allstate wants from me is closures and no complaints. Neither Allstate not Pilot will put up with customer complaints

-Pilot

003047-035memCH

Non-Cat

• We are measured on everything. But I focus on reaching my customer satisfaction goals because that's what managers focus on and it affects how big my raise is

• It seems like all we ever hear is close claims quickly

35

H000000918

The focus on closing claims quickly and minimizing customer complaints frequently drives suboptimal behavior.

BEHAVIOR DRIVEN BY OBJECTIVES

Objectives

Close claim quickly

Minimize customer service complaints

Cat

Rationale

• Paid per claim • Economic benefit for

return visit is limited • Performance

-Pending -Closures

• Fired after 2-3 customer complaints

• Encouraged to pay questionable claims if customer disputes

• Complaints slow down production

Outcome

• Do not negotiate alternative methods of repair/ vendor prices

• Stockpile scopes • Do not call insured to

explain estimates • Do not settle on site • Pay for unseen damage • Use contractor estimates

in place of their own

Non-Cat

Rationale

• Measured on production goals

• Pending tracked weekly • Failure to meet production

goals could affect compensation

• Find ways to pay claims to • ICSS results/formal avoid confrontation complaints affect

• Pay for items that caused compensation past complaints • Management overrides

claim rep decisions • Adjusters unprepared to

deal with confrontation (e.g., explaining CWPs)

003047-035memCH

Outcome

• Do not investigate (e.g., price, loss facts, coverage)

• Failure to negotiate alternative repair methods

• Do not pursue subro • Use contractor prices

instead of their own • Do not settle on site • Closure drives

• Find ways to pay claims to avoid confrontation

• Pay for items that caused past complaints

36

H000000919

003047-035memCH

In addition, we observed a number of other consistent themes which impair adjusters' ability to consistently handle claims properly.

KEY THEMES OBSERVED IN THE FIELD

Management time/focus

Training/ calibration

Skill levels

Cat

• Roles different at each cat site • Varying duties at cat sites prevent OCRs

and file examiners from performing early and frequent reinspections

• Emphasis taken away from OCR function during clean-up phase

• OCR reviews not always shared with file examiners

• Reinspections primarily completed to fulfill requirements

• Untrained in policy/coverage and customer interaction skills

• Examiners and OCRs perform same task differently from site to site

• Scope and estimate components vary within Cat sites

• Level of Cat prepar;:i.tion varies by CSA

• Certification process in development (for Pilot and NCMT)

Non-Cat

• Some managers responsible for multiple perils and disciplines

• Focus on administrative tasks and customer interaction

• Extremely limited time for coaching, reinspections, and ride-alongs

• Reinspections primarily completed to fulfill requirements

• Limited understanding of calibration process

• Training given secondary priority • Little ongoing skill/policy training • Training curriculum not updated

frequently • Limited reinspection feedback

• Management tenure low • Technical and policy skills insufficient;

leadership skills lacking in management staff

37

H000000920

KEY THEMES OBSERVED IN THE FIELD (CONTINUED)

Cat

Staffing • Insufficient staffing to adequately reinspect adjusters

Communication • Agents unable to communicate new procedures to customers to set expectations

• Agents receive break command via Alstar that interrupts normal business

Site preparation • Sites have inconsistent or outdated plans

• Critical information unavailable or outdated (e.g., policies, price guides, state regulations)

003047-035memCH

Non-Cat

• Resources dedicated to auto, casualty, and water - Homeowners given last priority

• Significant number of open J58s

• Importance of performance measurements not clearly communicated to the front line

• Quarterly reviews often not happening

• Clerical resources shared with other disciplines

• Equipment difficult to obtain/get approved (e.g. lap top computers, cell phones)

38

H000000921

We also identified organizational best practices which addressed some of the barriers to proper claim handling.

NON-CAT ORGANIZATIONAL FINDINGS

Summary

• 2 types of MCO structures -Multiline -Specialty

• Variations of multiline MCOs include - Specialization units for

homeowners -Allstate claim reps limited

to handling fire and water - Independents handle all

wind/hail

• Variations of specialty MCOs include - Inside/outside

units/adjusters - Resident adjusters - Centralization - Specialization by peril

Best practices

• Outside managers dedicated to field activities with limited inside responsibilities

• Inside managers with specialized inside units

• Inside and outside adjuster assigned to each claim

• Dedicate property clerical resources

003047-035memCH

Outcomes

• Outside UCMs focus on coaching and reinspections

• Wind/hail economic opportunity 50% lower than average

• Theft opportunity 62% lower than average

• Outside adjusters able to inspect greater number of losses

• Inside adjuster able to answer customer inquiries, pursue subro

• Clerical activities shifted to processors; adjusters free to focus on claims

39

H000000922

TODAY'S OBJECTIVES



- Cat

- By peril


c::::> • Discuss potential solution components and next steps

003047-035memCH

40

H000000923

h~ 003047-035memCH

In order to capture the opportunity, the solution needs to{omprised of two important elements - the specific new processes which directly alter front-line activities, and some underlying support elements which drive the behavioral change.

POTENTIAL SOLUTION COMPONENTS

Specific processes

Support structure

• Peril & cross-peril specific processes designed to capture opportunity

·• Environmental/cultural changes required to ensure specific processes remain in place and are effective

41

H000000924

Three broad process solutions (roofs/ exterior dwelling, contents, and vendor management) and two narrower solution (cause and origin, scoping) address a large proportion of the potential opportunity. The major support issues cut across perils and Cat.

SUMMARY OF POTENTIAL SOLUTIONS

Non-Cat

Fire Theft Wind/hail

Specific •Contents •Contents • Roofs/exterior process •Vendor/ dwelling

independent •Vendor/ management independent

• Cause and origin management •Scoping

Percent of 17:0~% 88 70 opportunity

Dollar $104 million 37 32* opportunity

Support • Skill levels structures • Measurements

• Management time/focus

•Staffing •Training • Incentives

• Based on reinspection opportunity

" Since wind/hail opportunity constitutes 56% of total Cat opportunity

003047-035memCH

Cat

• Roofs/exterior dwelling

•Vendor/ independent management

77

119**

42

H000000925

The process areas identified have a small number of discrete issues which need to be addressed to capture the opportunity.

KEY PROCESS IMPROVEMENT AREAS

Process areas Issues to address

003047-035memCH

Roofs, exterior dwelling • Recognition of sudden and accidental damages vs. no, prior, old, or

Contents

Predominantly fire

Predominantly theft

maintenance related damages • Lack of knowledge of alternative repair methods • Willingness to present insured with ACV • Subrogation not addressed

• Minimum or no Allstate involvement in inventory of contents • Lack of replacement cost verification • Paying FRC upfront or inadequate depreciation taken

• Replace vs. clean/repair

• Lack of proper investigation • Failure to recognize internal policy limits

43

H000000926

003047-035memCH

KEY PROCESS IMPROVEMENT AREAS (CONTINUED)

Process areas

Vendor management

Predominantly pilot/ independents

Predominantly QVP

Cause & origin (fire only)

Scoping/estimation by structural adjusters (Fire only)

Issues to address

• No calibration on the requirements to be a vendor • No calibration for the expectation of performance standards by the

vendgrs.-- L,;m; id. • ..-measurements in place to track vendor performance • Lack of on-going management involvement to address performance

gaps

• Inappropriate incentive/compensation structure (quantity vs. quality)

• Proper timing of cleaning/mitigation vendors • Lump sum bids

• Lack of proper skill set to determine and /or analyze C&O • Tin 1ely photos and statements which add value • Ability to synthesize C&O and take next steps • Timely POL and subro receipt

• Clean vs. replace -Timing - Lack of alt. repair methods

• No follow up inspections - Supplemental inspections - Release FRC

• Understanding of ACCUPRO -Overlap -LKQ

• Lump sum bids - No competitive bids 44

H000000927

003047-035memCH

While different to some degree, the underlying issues and what needs to be done to address them are quite similar across non-Cat and Cat.

ADDRESSING THE UNDERLYING ISSUES

Area

Skill levels

Staffing/organization

Training

Non-Cat

• What basic skill levels do we need? -Technical? -Policy? - Management vs. nonmanagement? - Negotiation/vendor relations? - Customer interaction/ interpersonal?

• How can roles be redefined to better leverage the limited skill base?

• What should the homeowners staffing model look like?

• How do we appropriately prioritize homeowners vs. auto casualty?

• How do we attract quality applicants to fill open positions?

• Does the current training curriculum meet our needs? Focus on critical issues?

• How do we ensure training is given the right priority?

• How do we ensure ongoing skill training?

Cat

• What should adjuster skill assessment look like? (e.g., peril, major/minor, coverage)

• How should ongoing NCMT skill assessment be designed?

• What might a Cat staffing model look like? -Cat type - Claim volume -All positions (adjuster, QCR, support)

• What NCMT staffing level is appropriate?

45

H000000928

003047-035memCH

ADDRESSING THE UNDERLYING ISSUES

Area

Management role/focus

Measurement

Calibration/consistent procedures

Incentives

Non-Cat

• What should be the specific roles of various management positions?

• How can we change management focus to become more effective? -Coaching? - Reinspections? - Ride-alongs?

Cat

• How should Cat roles be defined? • What should the role of the NCMT be

in management of pilot adjusters? • How do we drive consistent execution

of management and oversight activities?

• What behaviors do we want measurements to drive?

------....::i>

• What are the 2-3 key measures that -----1> will drive desired behaviors?

• What processes are needed to ------.t> capture and sustain performance? (e.g., communication)

• What defines a successful Cat?

• How do we make calibration a well-understood and effective tool in----t>driving performance?

• How do we drive consistent execution of processes across all Cat sites?

• How do we compensate to encourage -----it> appropriate behavior?

46

H000000929

003047-035memCH

The team will spend the next 10 weeks preparing for the set of field tests.

NEXT STEPS

Description

Study prework

Complete 1st-cut design

• Identify high impact points in processes to be redesigned

• Develop requisite organizational support model

• Define measures

Review and assess current analysis

-------Select and prepare for initial field test

• Determine appropriate split of test focus into 3 sites

• Establish key criteria for site selections

• Generate short list and select

• Define/train team members in roles/test process

Timing 4-8 weeks

Prepare for the analytical phase

Conduct analysis and debrief

---------Conduct 1st pass field test {process concepts)

• Test specific process redesigns in independent locations

• Use first test sites as active lah for adapting process changes

• Determine how capturable the opportunity is -what is systematically intractable

3 months

---

Develop Implementation package


--Develop comprehensive solution and implementation plans

Debrief and pull together independent. solutions into comprehensive answer

• Develop first-cut implementation transfer plan

TBD

--------Conduct 2nd pass field test {transportability)

• Test viability of overall solution

• Refine implementation process and package

• Test transportability of solution

TBD 47

H000000930

003047-035AjhdCH

Appendix

H000000931


Mitigation Fraud

Cat $millions 0 0 Percent 0 0

Fire $millions 5.1 0 Percent 1.0 0

Theft $millions 0 10.4 Percent) 0 5.6

Wind/hail (noncat) $millions 0 0.1 Percent 0 0.1

Overall $millions 5.1 10.5 Percent 0.3 0.6

Source: CFR; reinspections; OIS; C074 audit; working team analysis

Evaluation (cleaning and ALE)

0 0

14.4 2.8

0 0

0 0

14.4 0.8

Negotiation

0 0

3.1 0.6

0 0

0 0

3.1 0.2

003047-035AjhdCH

Salvage

0 275.1 0 30.5

3.1 134.8 0.6 26.2

0 42.0 0 22.7

0 32.0 0 23.5

3.1 483.9 0.2 27.8

1

H000000932

TOTAL CAT NOTICE COUNT AND GROSS DOLLARS PAID 1993-96

Gross dollars paid $Millions

Notice count Thousands

256

146

Jan Feb

384 356

* December 1996 not included

Source: OIS

232

122 105 102

Mar Apr May Jun

438 373 198 322

003047-035AjhdCH

118 90 91 84

64 47*

Jul Aug Sep Oct Nov Dec

295 296 248 285 255 157

2

H000000933

CAT WIND AND HAIL NOTICE COUNTS AND GROSS DOLLARS PAID 1993-96

Gross dollars paid $Millions

Notice count Thousands

77

33

Jan Feb

178 141

• December 1996 not included Source: OIS

154

Mar

144

111

90 77

65

48

Apr May Jun Jul Aug

197 195 195 120 122

003047-035AjhdCH

90

67

48 41*

Sep Oct Nov Dec

106 136 101 47*

3

H000000934

003047-035AjhdCH

RESULTS OF ACTIVITY TRACKING- NON-CAT SITES

Average time spent

Designation Activity Percent

Claim Representative (inside) Customer calls 15

Lunch and breaks 15

Diary input 13

File reviews 12

File, letter typing, and PEC input 10

Work conversations 7

Inquiry calls 3

Other 20

Claim Representative (field) Drive time 41

Scoping and evaluation 18

Phone calls to customers and voice mail 13

Lunch and breaks 8

Customer contact at loss site 6

ACCUPRO input 4

Other 10

Source: Activity tracking reports 4

H000000935

003047-035AjhdCH

RESULTS OF ACTIVITY TRACKING (CONTINUED)

Designation

Managers (mainly UCMs)

Activity

Communication with claim reps

Lunch and breaks

Other

Staff meetings with other managers

Mail

File reviews

List review

Complaint handling

Home office meetings

Agent calls

E-mail

Inquiry calls

Administrative

Moving office equipment

Personal calls/social conversations

Subro investigation

Other

Average time spent Percent

12

11

11

9*

9

6

6

5

4

3

3

3

3

2

2

2

11

• This number is an underestimate since the team often observed managers on meetings (both in office and external) that were not tracked explicitly

Source: Activity tracking reports

5

H000000936

003047-035AjhdCH

SKILL ASSESSMENT LEVEL DEFINITION

Methodology

Team leaders sat with CPS and/or MCM to jointly assess skill levels for homeowner managers within the CSA

Level 1

Level2

Level3

A basic understanding of the skill category - includes being able to explain the skill to others

A functional knowledge of the skill category - includes having the ability to teach others

An expert knowledge of the skill category; would be considered an organizational resource in the application of the theories and techniques in the skill category

6

H000000937

HOMEOWNERS PROJECT REVIEW - MANAGEMENT SKILL ASSESSMENT*

Technical Training

CSA 1 ti ti CSA2

CSA3 ti .,, CSA4

CSA5 .,, CSA6

Includes UCM and PCM level

Source: Skill assessment forms

Oral Written Organization Leadership Policy

ti ti ti .,, -

ti ti ti ti .,, ti ti

ti

ti ti ti

003047-035AjhdCH

ti Deficient skill level

- Not evaluated

Computer .,, -.,, ---

7

H000000938

I i

I I

I i I I

I Allstate Brand - P-CCSO

CCPR UPDATE AUTO AND HOMEOWNER

H000000939

Allstate Brand - P-CCSO

Auto CCPR New Approach

Discussion Topics

• Elements of New Approach

• California Outcomes - Learnings and solutions - Transition to Front Line - Results

• Florida Strategy -Approach

• Preliminary Implementation Strategy - Country wide support - Segment-specific implementation

• Decision Tool

H000000940



ELEMENTS OF NEW APPROACH

Damages Segmentation

• Estimating Accuracy Requirement • Comparative negligence

CCPR Process •Total Loss •Matrices

• Service Calls •Contacts

MOS/MO I

Supporting solution Performance management Rigor and Discipline

NewUCMRole

H000000941

I 1


Auto CCPR New Approach Southern California learnings November 1996 - February 1997

Learnings

Processes as designed are effective, supporting solutions to include infrastructure are necessary Solutions

Original implementation was too focused upon "what to do" (not how to do it)

UCMs operated in a reactive manner engaging in minimal coaching or training

Performance management system did not reflect new processes

Physical Damage assignment process needed refinement

Original Auto CCPR implementation had little impact on liability assessment and application

• Ensure that Front Line understand exactly how the new processes work • Develop job aids

- MCO monthly meetings - Weekly calibration; role plays - Weekly Auto Tech team sessions

• Redesign UCM role to be proactive - new job - One-on-one coaching - Teaching/training at desk/car - Process focused - Model new behavior - Understanding of reports - Institute regular figure review meetings

• Redesign performance management system to support CCPR processes - Develop MRs/PSs by position - Set effective goals by CSA, MCO and position

• Create dispatch workshop • Develop directed MOS/MOI strategy

• Institute comp. neg. training module •Test "second look" process • Redesign AFR • Ensure weekly round table discussion and role plays ·

H000000942



~

Goal: To gain and sustain significant competitive

-advantage by achieving 10 point improvement in ,_

customer satisfaction and 7 point severity improvement while enhancing employee t--

relationships

'--

TRANSITION TO FRONT LINE

Critical levers driving success of Auto CCPR

Estimating accuracy requirements

Liability accuracy requirements

Total loss accuracy

Customer service requirements

Ongoing priorities

• DE reinspections • UCM ride-alongs/coaching • ACPS validation of accuracy

• UCM file reviews • UCM sit-alongs/coaching • ACPS validation of accuracy

• DE reinspections • UCM reinspections and

sit-alongs/coaching •ACPS validation of accuracy

¢ ¢ ¢

Calibration

Calibration

Calibration

• UCM ride-alongs/sit-alongs/coaching •Monitoring of customer service drivers (via Cl99) • ACPS validation of process compliance

H000000943

I I I I I

I i


COMPARISON OF AUTO PD PERFORMANCE

Percent

1 month (March) 1997 vs. 1996

8.8

1.6 2 2

7.2

PD

-0.7

Collision Comprehensive

Source: OIS

CJ Country wide

- Southern California

H000000944

I I

I I I

I I

I i

I I Allstate Brand - P-CCSO


Percent


8.8

1.6 2 2

-0.7

7.2

PD Collision Comprehensive

Source: OIS

3 month mover 1997 vs. 1995

9.7

7.8

3.8

0.7

PD Collision

CJ Country wide

- Southern California

8.9

-3.8 Comprehensive

H000000945

Allstate Brand- P-CCSO

COLLISION SEVERITY TRENDS Percent severity growth indexed to 1988

160

150

140

130

120

110

100 88 89 90 91

Source: Fast track

-------.,,

92 93 94 95 9601 9602 9603

Industry

Allstate

H000000946

I I



FLORIDA STRATEGY MARCH-JULY '97

Mission: To utilize our learnings from Southern California to design an effective implementation strategy for the rest of the country

• Create a showcase for Auto CCPR success

• Ascertain ability to transfer knowledge in multiple segments in stable and unstable environments

•Drive results through new performance management system

• Create winning team culture

• Enhanced PRO integrated into CCPR solution

H000000947



Preliminary Countrywide Implementation Strategy

• Release Auto CCPR support processes prior to New Approach implementation

- Performance Management

-MOS/MO!

- New UCM Role

- Miscellaneous job aids

H000000948




• Develop Segment Specific Implementation

• Triage CSAs

- Implementation Vs. nonimplemented

- Percent economic opportunity

- Staffing status (hiring completed, experience levels, culture, skill)

- Geography

• Design CSA specific implementation approach

• Build timeline and estimate potential economic impact

H000000949


HONDA CIVIC 1992-95-ADJUSTER COMPARISON FOR DRIVE-IN Average estimate amount In dollars

Adjuster

Number of estimates

499

A

7

750

B

6

771

c 8

968

D

9

970

E

11

1,291

F

8

1,507

G

9

1,666

H

5

• Adjusters with less than 5 estimates on Honda Civic were not shown, 134 total Honda Civic drive-in estimates Source: ADP damage data for Oct-Nov 1996 In Southern Calttornla CSA

CSA average = 1,058

Current status

• Organizing team to conduct test

• Developing manual decision tool for test

• Selecting test sites In Florida

• Begin testing In May

H000000950

I I !

I I I I

I ' i

Homeowner CCPR

FIRE

WIND/HAIL

THEFT/CONTENTS


FACT BASE

• 36 MCOs


• 533 re-inspections

KEY FINDINGS BY PERIL

• 26.2% ($135 million) opportunity

• Opportunity concentrated in structure/contents evaluation

and subro ($120 million)

• 23.5% ($32 million)) opportunity non-Cat

• 30.5% ($154 million) opportunity Cat • Largest area of opportunity is in evaluation of roof damage

($18 million non-Cat and $80 million Cat)


• Opportunity driven by coverage identification, loss investigation/evaluation

H000000951

I

I Allstate Brand - P-CCSO I

Homeowner CCPR

DESIGN WORK

AREA OF FOCUS PROCESSES BEING TESTED

Fire Structure • clean vs replace

• cause and origin investigation • subro ID/pursuit

Fire contents • on-site inventory

• pricing

• evaluation

Wind/Hail roofs • coverage/damage identification

• repair vs replace

• estimating skill

H000000952

I

I I I

I '

I I I

I ' !


Homeowner CCPR

TESTING PLANS

Target Tests (March - August)

• Locations - Roseville (fire structure and contents) - Albuquerque (roof adjusting - non-Cat)

• Challenges - Skill assessments - Technical training - Calibration - Customer satisfaction

• Strategy

First Round Testing - Limit testing to two processes - Use first test sites to identify solutions/develop process - Perfect processes - Prove processes will capture opportunity

H000000953

I I I I

I

I I I

Allstate Brand - P-CCSO April 18, 1997

Homeowner CCPR

TESTING PLANS


• Strategy

Subsequent Testing - Expand scope (refinement and transportability) - Test Roof Process in Cat environment - Begin theft/contents testing

H000000954

!

I


RESULTS FROM MCO CALIBRATION EXERCISE Dollars

Estimate written on Identical hail damaged roof

4,050

Economic opportunity

CCPR estimate = $1,570

• 5 adjusters asked to adjust the same roof during field calibration exercise • Unit cost for shingles varied between $59 per square to $85 per square • Area measurement varied between 25 and 43 squares • 2 contractors visited the site and confirmed the CCPR scope and estimate

H000000955

BRAND MEETING 4/18/97

H000000956

H000000957


CCPRUPDATE AUTO AND HOMEOWNER

H000000958



Discussion Topics





• Decision Tool

H000000959





• Estimating Accuracy Requirement • Comparative negligence CCPR Process

•Total Loss •Matrices


MOS/MOI


NewUCMRole

H000000960



Learnings












• Institute comp. neg. training module • Test "second look" process • Redesign AFR • Ensure weekly round table discussion and role plays

H000000961



Goal: To gain and sustain significant competitive advantage by achieving 10 point improvement in customer satisfaction and 7 point severity improvement while enhancing employee relationships

-

.__

.__

'--





Total loss accuracy


Ongoing priorities




sit-alongs/coaching • ACPS validation of accuracy

¢ ¢ ¢

Calibration

Calibration

Calibration

• UCM ride-alongs/sit-alongs/coaching •Monitoring of customer service drivers (via Cl99) • ACPS validation of process compliance

H000000962



Percent


8.8

1.6 2 2

7.2

PD -0.7


Source: OIS

D Country wide

- Southern CalHornla

H000000963



Percent


8.8

1.6 2 2

-0.7

7.2


Source: OIS


9.7

7.8

3.8

0.7

PD Collision

D Country wide

- Southern CalHornia

8.9

-3.8 Comprehensive

H000000964


COLLISION SEVERITY TRENDS

Percent severity growth indexed to 1988

150

140

130

120

110

89 90 91

Source: Fast track

92 93 94 95

-------;;

Industry

Allstate

9601 9602 9603

H000000965







• Drive results through new performance management system



H000000966






-MOS/MOI

- New UCM Role


H000000967





• Triage CSAs




- Geography



H000000968


HONDA CIVIC 1992-95 -ADJUSTER COMPARISON FOR DRIVE-IN

Average estimate amount in dollars

Adjuster

Number of estimates

499

A

7

750

B

6

771

c 8

968

D

9

970

E

11

1,291

F

8

1,507

G

9

1,666

H

5

• Adjusters w~h less than 5 estimates on Honda Civic were not shown, 134 total Honda Civic drive-In estimates Source: ADP damage data for Oct-Nov 1996 In Southern Calttornia CSA

CSA average = 1,058

Current status



• Selecting test sites in Florida

• Begin testing in May

H000000969

Homeowner CCPR

FIRE

WIND/HAIL

THEFT/CONTENTS


FACT BASE

• 36 MCOs












H000000970


Homeowner CCPR

DESIGN WORK



• cause and origin investigation

• subro ID/pursuit


• pricing

• evaluation




H000000971


Homeowner CCPR

TESTING PLANS




• Strategy


H000000972


Homeowner CCPR

TESTING PLANS


• Strategy


H000000973



Estimate written on identical hail damaged roof

A B c

4,050

D E




H000000974


H000000975






H000000976




CCPR Process

~ 7 (' (1 (I ~' fJ' r__;

'JAA 'I'.· .. ·. 1-f ~ ·;, ,, ' '

S pporl:in~ solution Performance management Rigor and Discipline

NewUCMRole

3

H000000977



Learnings







• Ensure that Front Line understand exactly how the new processes work • Develop job aids . 0J.

- MCO monthly meetings ~;t, ci t.Jc.-t..ul Cf.)l\!' . .J

- Weekly calibration; role plays l.JJ/li.££<A ~ -1tOZh~ ~". di!hP - Weekly Auto Tech team sessions-'--f U'J__;{ tJtv {J)u,) "CJ/~ ;trrL ~v(J o

• Redesign UCM role to be proactive - new job · - One-on-one coaching - Teaching/training at desk/car 0 1 - Process focused o o / - Model new behavior lo . ,~ A~ - Understanding of reports

6/:f'

- Institute regular figure review meetings ()


• Create dispatch workshop&, 0 J!.£1~ uj(9idM.c~ (~i!rrt~ mos/ mo I • Develop directed MOS/MOI strategy ·

• Institute comp. neg. training module •Test "second look" process • Redesign AFR • Ensure weekly round table discussion and role plays

H000000978

MIAMI MARKET RESULTS

. 1/4 Q1 »u Af

AUTO CUSTOMER SATISFACTION:/ +10.l

MARCH 97 /96 SEVERITY: BDH -7.3

-7.7

' QLMS OVERALL SATISFACTION: MIAMI NO +6.0

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MIAMI SO +11.0

CSA +7.0

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April 18, 1997





Total loss accuracy


Ongoing priorities

•DE reinspections • UCM ride-alongs/coaching • ACPS validation of accuracy




Calibration

Calibration

Calibration

• UCM ride-alongs/sit-alongs/coaching •Monitoring of customer service drivers (via C199) • ACPS validation of process compliance

H000000980



Percent


8.8

1.6 2 2

7.2

PD

-0.7


Source: 015

D Country wide

- Southern CalHornla

H000000981


COMPARISON OF AUTO PD PERFORMANCE Percent


8.8

1.6 2 2

-0.7

7.2


Source: OIS


9.7

7.8

3.8

0.7

PD Collision

D Country wide

- Southern Calttornla

8.9

-3.8 Comprehensive

H000000982


COLLISION SEVERITY TRENDS

Percent severity growth indexed to 1988

160

150

140

130

120

110

100 88 89 90 91

Source: Fast track

~

92 93 94 95

-------;;

9601 9602

H000000983





/ (1 c /'i {I d MffW cu -' c.0 ._.....__ {~/J -• Create a showcase for Auto CCPR success - So-v... c___ -11Y<-< ti 9 ~ () t L· c~.i Lr • Ascertain ability to transfer knowledge in multiple segments in stable and unstable environments (] tY - · ~· , c- · --

H000000984






-MOS/MOI

- New UCM Role


H000000985





• Triage CSAs




-Geography



H000000986

HONDA CIVIC 1992-95 -ADJUSTER COMPARISON FOR DRIVE-IN

Average estimate amount in dollars

499

Adjuster A

Number of 7 estimates

750

8

6

771

c 8

968

D

9

970

E

11

1,291

F

8

1,507

G

9

1,666

H

5

Adjusters with less than 5 estimates on Honda Civic were not shown, 134 total Honda Civic drive-In estimates Source: ADP damage data for Oct-Nov 1996 in Southern Calttornia CSA

Current status


CSA • Developing average manual decision = 1,058 tool for test



H000000987

Homeowner CCPR

FIRE

WIND/HAIL

THEFT/CONTENTS


FACT BASE

• 36 MCOs










• 22. 7% ($42 million) opportunity


H000000988


Homeowner CCPR

DESIGN WORK






• pricing

• evaluation




H000000989


Homeowner CCPR

TESTING PLANS




• Strategy


H000000990


Homeowner CCPR

TESTING PLANS


• Strategy


H000000991



Estimate written on Identical hail damaged roof

4,050




H000000992


CCPRUPDATE AUTO AND HOMEOWNER

H000000993



Discussion Topics





• Decision Tool

H000000994





• Estimating Accuracy Requirement • Comparative negligence CCPR Process

•Total Loss •Matrices


MOS/MOI


NewUCMRole

H000000995



Learnings












• Institute comp. neg. training module • Test "second look" process • Redesign AFR • Ensure weekly round table discussion and role plays ·

H000000996




-

.......__

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Total loss accuracy


Ongoing priorities





¢ ¢ ¢

• UCM ride-alongs/sit-alongs/coaching

Calibration

Calibration

Calibration

• Monitoring of customer service drivers (via C 199) • ACPS validation of process compliance

H000000997


Percent


8.8

1.6 2 2

7.2

PD

-0.7


Source: OIS

D Country wide

- Southern CalHornia

H000000998


Percent


8.8

1.6 2 2

-0.7

7.2


Source: OIS


9.7

7.8

3.8

0.7

PD Collision

c:J Country wide

- Southern Calffornia

8.9

-3.8 Comprehensive

H000000999


COLLISION SEVERITY TRENDS Percent severity growth indexed to 1988

160

150

140

130

120

110

100 88 89 90 91

Source: Fast track

92 93 94 95

-------;-'

Industry

Allstate

9601 9602 9603

H000001000







• Drive results through new performance management system



H000001001






-MOS/MOI

- New UCM Role


H000001002





• Triage CSAs




- Geography



H000001003

HONDA CIVIC 1992-95 - ADJUSTER COMPARISON FOR DRIVE-IN Average estimate amount in dollars

Adjuster

Number of estimates

499

A

7

750

B

6

771

c 8

968

D

9

970

E

11

1,291

F

8

1,507

G

9

1,666

H

5

• Adjusters with less than 5 estimates on Honda Civic were not shown, 134 total Honda Civic drive-In estimates Source: ADP damage data for Oct-Nov 1996 In Southern California CSA

CSA average = 1,058

Current status





H000001004

Homeowner CCPR

FIRE

WIND/HAIL

THEFT/CONTENTS


FACT BASE

• 36 MCOs












H000001005


Homeowner CCPR

DESIGN WORK






• pricing

• evaluation




H000001006


Homeowner CCPR

TESTING PLANS




• Strategy


H000001007


Homeowner CCPR

TESTING PLANS


• Strategy


H000001008



Estimate written on identical hail damaged roof

4,050




H000001009

three keys to ccpr success...three keys to ccpr success learn, understand, believe the fact base...

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